(New York)

A terrible December and then a great January. There is certainly reason for optimism on shares, but investors may well be nervous after a such a dramatic swing. February is not traditionally a very strong month for stocks, but this year could be different. That is for two reasons. The first is that February tends to mimic January, and secondly, because the Fed has just made a historic u-turn on rates, which should provide much smoother sailing.

FINSUM: The other big factor here is that p/e ratios have fallen dramatically over the last year because of the big move lower in stocks and the healthy gains in corporate profits. We are increasingly optimistic.

(New York)

December was the worst month for stocks since the Financial Crisis. It was a bleak for almost all investors. Then something magical happened—we just had the best January in thirty years. Forget the shutdown and the polar vortex, the S&P 500 rose a whopping 7.9% in the month. Banks and smaller companies did particularly well, outpacing the broader market. The market has been calmed by much more soothing language from the Fed, which has lessened fears about a recession.

FINSUM: What a month it was for stocks! We think the market had a very healthy correction which put earnings multiples back into a reasonable place, and there is a much better runway from here.

(New York)

BAML has put out a report chronicling a new outlook for stocks, and it isn’t pretty. The report shows that investors have the worst views on the markets in a decade. Investors are pessimistic about global growth and corporate profits, the combination of which makes them expect a weak equity market. Here is a summary of Bank of America’s report: “A poll of asset managers showed a net 60 per cent of those questioned think growth in gross domestic product will weaken over the next 12 months, the worst outlook on the global economy since July 2008 and below the trough in January 2001”.

FINSUM: So it is important to note that these are asset manager opinions, not individual investors. Accordingly, it may not be as much of a contrarian indicator as usual.

(New York)

There are currently a lot of fears about corporate credit’s ability to sink the economy and markets. There has been an absolute massive surge in issuance since the Financial Crisis, and a great deal of that issuance happened in credits just on the bottom fringe of investment grade. And while a good amount of that debt may founder and sink into junk, it won’t be enough to hurt the economy much. The reason? It is because US households have not increased their leverage significantly in recent years, which is likely to prove a saving grace for the economy. Growth in household debt has been lower than inflation, a sign of relative health.

FINSUM: While corporate credit can get markets in trouble, so long as the American consumer is not deleveraging, things will probably not get too bad in the wider economy.

(Washington)

Investors may not be thinking about it much, but that does not mean the US deficit is not continuing at massive levels. This year will see another $1 tn shortfall in the US budget, a fact that the US Treasury will have to make up for by issuing lots of debt. This will be the second straight year of $1 tn Treasury issuance. So far the market has been happy to absorb the extra debt, and as such, the Treasury is planning to maintain a similar schedule of issuance this year.

FINSUM: The market seems to be a long way from having its fill of Treasuries, but at some point yields will move higher simply as a force of extra supply.