Displaying items by tag: S&P 500

(New York)

The market has become very fixated on higher rates and yields, with every investor nervous it will cause losses in their stock and bond portfolios. However, one Wall Streeter is saying fears are overblown, especially as it concerns how stocks lose on account of bonds. The logic is that stock P/E ratios never fully took account of ultra-low yields, so in effect, there is a cushion in stock prices against rising yields. Therefore, yields crossing 3% won’t necessarily cause any losses.

FINSUM: This is the “priced-in” logic of stock prices. We must say we do not agree. This kind of argument assumes that investors are being rational and have long memories, as well being agnostic of short-term changes in priority. We do not think the market is this impervious to fear.

(New York)

If one thing is clear about markets right now, it is that they have no direction. Volatility has been very high, but not in any one direction, as prices have been bouncing around as if they were inside a pinball machine. In this vein, Barron’s makes the argument that markets may keep simply moving sideways, possibly through 2027. The article summarizes the view this way, saying “With the Fed continuing to raise rates, populism still threatening Wall Street, and baby boomers ditching stocks as they retire, the market could be stuck in a rut until the end of 2027”.

FINSUM: Nine years is a long time to move sideways! In the nearer term stocks may struggle as we are in a mid-term election year. In such times, they tend to do well in the fourth quarter.

(New York)

On Tuesday markets seemed to reverse course. Even as stocks plunged, it appeared that for the first time in recent memory, they were the asset class driving bonds rather than the other way around. Yesterday, the idea of equities taking on a life of their own seemed to reinforce itself, as stock rose modestly even as bond yields jumped higher and stayed steady above 3%.

FINSUM: This is a very tenuous time for markets. Something is definitely happening in bonds, but no one—Wall Street included—knows exactly what.

(New York)

Bloomberg has just made a bold call—they say the bull market ended yesterday. While stocks dropped sharply, 1.7% for the Dow, which basically eliminates all the progress they had made over the last couple of weeks, it is hard to say that it means the end of the bull market. The reason Bloomberg argues so is that the market has been stuck in a rut for three months, and yesterday, investors digested a dark survey which showed that Americans, on average, expect stocks to be lower 12 months from now, a sharp turnaround in sentiment. One portfolio manager from Stifel Nicolaus summarizes where the market is now, ”Investors have this understanding that equity markets are at lofty levels and we are in a low-return environment, so as the risk-free rate moves higher, even in a gradual manner, that becomes more of a competitive asset class”.

FINSUM: We are not particularly bearish, but do concede that if rates keep moving higher it is going to be hard for equities to do the same.

(New York)

Stocks have managed to turn around from their dire condition of a couple weeks ago, and from last week, have rallied well. So, what has driven the turn around, investors are probably asking. According to Barron’s, part of it is earnings, but there is more to the story. The apparent answer is that market breadth and sentiment are improving across the board, which is helping provide positive momentum. It also isn’t hurting that earnings have been strong across the board.

FINSUM: We think the more positive sentiment is just from a lack of bad news on the trade war front. No news is usually good news in such a situation and fear ebbs so long as no new developments are released.