Developed Countries
For all the quibbles with occasionally large subsequent revisions, head-scratching seasonal adjustments and the accuracy of the birth-death model attempting to estimate the effects of business openings and closures, the monthly change in nonfarm payrolls is a…
The Conference Board’s Consumer Confidence Index measure hit a new pandemic low in August, slipping below its April level to make a new six-year low. The leading expectations component of the index also made a new pandemic low, falling to its lowest level in…
The Richmond Fed Manufacturing Survey for August surprised positively yesterday, jumping to 18 from July’s 10. The diffusion index revealed that an increasing share of manufacturers in Maryland, West Virginia, Virginia and the Carolinas saw activity remaining…
Yesterday’s Ifo survey of German Business Confidence was promising. The business climate index rose for the fourth consecutive month in August to 92.6, topping the 92.1 consensus forecast. The current assessment component rebounded smartly from 84.5 in July…
The frenetic rise in the forward multiple explains all of the SPX’s return year-to-date and then some as 12-month forward EPS have taken a beating. Equities are long duration assets and given the drubbing in the discount rate, the forward P/E multiple has done all the heavy lifting. The chart below puts some historical context to the S&P 500 forward P/E going back to 1979 using I/B/E/S data. Empirical evidence supports finance theory and shows that the 40-year bull market in bond prices has caused a structural upshift to the SPX forward P/E. The onus now falls on profits to make a comeback, and the jury is still out. The big risk remains a selloff in the bond market that triggers a cascading effect with investors fleeing highly valued tech growth stocks (which have been the pillar of the SPX’s recovery since the March lows) and redeploying capital in some beaten up deep cyclical areas. Such a transition will be tumultuous and likely serve as a catalyst for a much needed breather in the overall market. Bottom Line: While we remain cyclically bullish, a near-term correction is likely in the cards as markets are getting extremely stretched and complacent at a time when (geo)political risks are lurking in the background.
Global central bankers will hold their annual Jackson Hole summit this week, though they will not actually huddle in Wyoming due to the pandemic. While interesting speeches and papers always issue forth from this perennial event, the real interest this…
Close to 60% of US offshore oil production and 45% of natural gas production is shut down as Hurricane Marco and Tropical Storm Laura threaten the Gulf of Mexico. This amounts to some 620,000 b/d of oil output – close to 10% of US crude oil production – and…
Yesterday the Chicago Fed's National Activity Index came out for July. It fell from June's record high print of 5.33 to 1.18, well beneath expectations. However, the print remains above trend as the production & income components and employment components…
BCA Research's US Equity Strategy service compares the current unprecedented SPX rebound with the historical recessionary profile. Equities appear excessively stretched. The bottom panel of the chart above warns that the SPX is vulnerable to a snapback,…
US President Donald Trump and his Republican Party launched their national convention this week, a four-day virtual event that will feature Trump’s formal designation as the party’s presidential nominee in Charlotte, North Carolina. President Trump’s…