(New York)

A huge investment bank has just put out an eye-opening, no, eye-watering, article that jumps right off your browser window. Societe Generale is now saying that the S&P 500 will fall to its 2009 lows. And not just that, as SocGen says we will fall into a new financial “ice age”. The argument is based on analysis of what happened to Japan’s markets and economy in the 1990s, a fate Societe Generale says the West is doomed to repeat. The bank argues that the West was headed for this fate when the Financial Crisis kicked off, but that the Fed managed to reverse the pattern by inflating assets.

FINSUM: This is one of the most bearish arguments we have ever read. We doubt this will occur, but nonetheless felt compelled to share it.

(Washington)

The back and forth on the burgeoning trade war with China is getting exhausting and confusing. Only a day after US officials tried to clam down the situation by saying that a trade war would be avoided, President Trump announced a further $100bn of proposed tariffs on Chinese goods. Trump explained his response to China’s hike in tariffs on US goods this way, saying “Rather than remedy its misconduct, China has chosen to harm our farmers and manufacturers … In light of China’s unfair retaliation, I have instructed the [US Trade Representative] to consider whether $100bn of additional tariffs would be appropriate . . . and, if so, to identify the products upon which to impose such tariffs”.

FINSUM: So we understand why the US wants to raise tariffs, but at the same time, it is hard to root for a trade war which seems like it will hurt all involved.

(New York)

There are a lot of reasons to be bearish on stocks right now. Aside from worries about rates and a recession, there is the big issue of a potential trade war to consider. However, there is at least one reason to be optimistic—the overall pessimism of investors. In one of the classic contra indicators, contrarians often see market pessimism as a strong buy signal. Investor sentiment has abruptly swung from very bullish to strongly bearish, with negative sentiment its highest in seven months. A strategist at BNP Paribas commented that ““There’s more of an extreme fear reaction now … As a contrarian indicator, that makes me actually bullish”.

FINSUM: We don’t think this signal means anything other than investors are afraid of rates rising, a recession, and a trade war. Since all of those things could come true regardless of how investors feel about stocks, we don’t believe there is much significance to this.

(New York)

The US credit market has not exploded, but as yields drift higher, the situation is worsening. High yield is seeing yields and prices back to where they were in 2016, though not quite as bad as in early 2016, which was the last time there was an equity market correction. There are big worries about the huge ($2.5 tn+) pool of triple B bonds, which look vulnerable. Triple Bs now account for half of the US investment grade market. The good news is that corporate earnings are in good shape, which means credit-worthiness is still strong.

FINSUM: We think fears about the credit market are a little overblown at the moment. Earnings and credit-worthiness are still strong, and there is going to be good demand for decent yields, which should keep things in a band.

(Washington)

This morning the US released a jobs report that was expected to be very strong, with unemployment maybe falling under 4%. However, the opposite happened, and we have a definitively weak report on our hands. The economy only created 103,000 jobs versus expectations of 178,000 and unemployment held steady at 4.1% rather than falling to 4%. The Labor Department also revised previous months downward, worsening the overall picture.

FINSUM: This is an interest result and one that seems more likely to keep the Fed leaning towards dovishness. We would say this is clearly bullish for bonds, and a little bearish for stocks.