Displaying items by tag: bear market

(New York)

In a sign that is setting off alarm bells on Wall Street, the market’s safest stocks have been surging of late. Investors are increasingly demanding “quality” stocks as a buffer against a potential downturn in the market. “Quality” stocks usually refers to to companies with a range of positive characteristics like high profitability and low debt. However, market strategists point out that such stocks are so well bought that they might not have their intended effect, “Quality factors are well bid so may not be as defensive as people expect”. ETFs that track “quality” stocks have been surging.

FINSUM: One can understand the flight to quality given very high valuations and the hawkish Fed, but it is still a worrying sign that so many feel the need to take cover.

(New York)

The big question on every investor’s mind (and Wall Street’s) is when the US recession will arrive. With the economy doing so well, and certain indicators flashing negative, a recession in the next few years looks all but certain. But how soon? Some say it will be by the end of 2019, others think that is too aggressive. Well, a survey of US business economists has just been published that shows a majority of them believe the recession will arrive before the end of 2020. Most precisely, 66% believe a recession will occur before the end of that year.

FINSUM: This seems like a fair representation to us, but predicting the timing of recessions is notoriously difficult, so there may be little value in this survey.

(New York)

Looking at the market’s performance, it is probably a good time to short some shares. The majority of gains for the sector are being driven by a handful of high-flying tech shares, but the majority of stocks are doing much. Therefore, it seems like a good bet to short certain under-performing sectors. However, the options for doing so aren’t great, as the majority of short ETFs cover the whole market or are heavily leveraged. Now there is a new option though, the AdvisorShares Dorsey Wright Short ETF. The ETF shorts only the market’s 80 to 100 weakest mid and large caps, and it is one of only four short ETFs that don’t seek to replicate an index’s return.

FINSUM: This seems like a very good application of the smart beta concept.

(New York)

The very public grudge match between JP Morgan and President Trump appears to be continuing, albeit in a more subtle way this week. Strategists at JP Morgan went on the record saying that one of the biggest risks to the market right now is that Trump overestimates the US economy and makes a major miscalculation in his trade war with China. The big worry is that Trump takes the trade war too far and sends China into a recession, which would then reverberate and cause a global reversal, shocking markets.

FINSUM: China experiencing a significant downturn could cause a chain reaction amongst EM and developed economies which could come back to sting the whole western world.

(New York)

The market has been doing very well lately. Political worries, trade wars, it doesn’t matter, nothing seems to be able to contain the market’s optimism. Despite all this, though, Bank of America says it is all about to come to an end. The bank’s top strategist says that weakening growth, rising rates, and a glut of debt will conspire to weaken stocks. “The Fed is now in the midst of a tightening cycle, ignoring structural deflation, focusing on cyclical inflation … Until this Fed hiking cycle ends we suspect absolute returns from financial assets will remain slim & volatile”. BAML says that weakening bank stocks even in the face of rising rates (which should be good for them) may be a sign of how badly the Fed’s tightening will affect of the overall economy.

FINSUM: This is quite a gloomy and contrarian opinion. We see the argument, but it certainly seems to contradict everything one can observe in the market and economy right now.