Your recent flight to safety and the pain of carry trades in the face of Ukraine and the FOMC, charted and worded by Hartnett and BofAML:
Looking at total returns, stocks and bonds are up around 4% year-to-date while commodities are down 1.4%. But since July 16th, the day prior to the downing of flight MH17, the US dollar has outperformed all major currencies, cash has outperformed all major asset classes (see Table 1) and the only equity markets showing gains are China, Kazakhstan, Saudi Arabia & Egypt. Of particular note, the combination of a geopolitical flight to quality and concerns about the end of the era of excess liquidity appears to have caused the three big “carry trades” of 2014, high yield bonds, European peripheral bonds and EM debt, to be “carried out”
Janet Yellen says share valuations remain within “historical norms”.
Two words: “irrational exuberance”. Read more
Anyone who invested during the 2000 dotcom bubble knows that the inflation of internet stocks last year was nothing like on the scale of the last mania. But just how much smaller was it?
Well, the popping so far this year suggests it was about two-fifths the size…
OK, we’ll admit it, when it comes to long term measures of stock market valuation something might actually be different this time.
Which prompts a question: is a moderately negative case actually worse for market enthusiasm than predictions of disaster that can be dismissed out of hand? Read more
Since September 2011, the Fed has succeeded in managing inflation expectations but not inflation itself. Has anybody noticed? What happens when they do? Will QE4 be as successful at changing even inflation expectations when QE1, QE2, Operation Twist and QE3 have failed to prevent recorded inflation from now falling to 1.1%?
Russell Napier, strategist for CLSA, warns that benign inflation (s0 far as stock market investors are concerned) is very close to becoming dangerous deflation once more. (H/T to Climateer.) Read more
This is is a guest post from Philip Pilkington, a writer and research assistant at Kingston University.
After a few days of volatility the S&P 500 rebounded on the back of better than expected jobs data last Friday. Meanwhile the Nikkei, the decline of which the previous week seems to have precipitated the shakiness in the S&P 500, started to stabilize on Monday. And so the classic question rears its head once more: do stock markets drive the economy or vice versa? Read more
Worried about the Fed’s taper tactics? Maybe Abe’s poisoned third arrow?
Andrew Garthwaite’s not. The Credit Suisse equity strategist has just hiked his S&P 500 forecast to 1,730 (from 1,640). For 2014 he’s going for 1900. Yes, Garthwaite sees another 15 per cent… Read more
Here it is Goldman’s big call: the S&P 500 will reach 1,750 by the end of this year; 1,900 in 2014; and 2,100 in 2015.
H/T Josh Brown, who points out this isn’t about earnings but a re-rating of equities (and dividends). Read more
With the US earnings season drawing to a close, it seems a good time to examine the aggregate picture. In a note published on Monday, equity and quant strategists at Bank of America Merrill Lynch have done just that, for S&P 500 companies. Report card in the form of a pie chart (thank goodness this wasn’t how class results were presented at school): Read more