Displaying items by tag: S&P 500

(New York)

If your natural instinct is to worry about a looming recession, you are not alone. Logic dictates that with the economy and bull market having been rolling for so long, a downturn is inevitably around the corner. However, the chief economist at Deutsche Bank is making the exact opposite argument. Torsten Slok contends that the economic expansion will likely go on for “many more years”. His explanation: “The lack of willingness to spend on consumer durables and corporate capex is also the reason why this expansion has been so weak … And it is also the reason why this expansion could continue for many more years; we are simply less vulnerable to shocks in 2020 because there are few imbalances in the economy”.

FINSUM: We don’t dislike this view, but in our opinion the artificially low interest rates maintained by the Fed have much more to do with the length of this recovery (and its future prospects), than financial conservatism amongst businesses and consumers.

(New York)

Calm and collected asset manager Vanguard has just made an eye-opening call about 2020. The firm’s chief economist and investment strategy chief, Joseph Davis, says there is a 50-50 chance of a correction in 2020. The market hasn’t seen a correction since December 2018, when it dropped to within a hair of a bear market. Davis says he usually sees about a 30% chance for a correction in any given year. Vanguard says that while investors were too pessimistic about recession chances this year, next year they’ll be too optimistic about re-inflation.

FINSUM: Seems a reasonable call, if rather safe.

(New York)

The Dow gets a lot of intention in the media, but in the investing world it is relatively rare to see Dow-tracking products compared to those linked to the S&P 500. This has led to a general perception of the Dow being old-fashioned and not particularly suitable for investment because of its odd weighting system. But not so fast (!), over the last five years the Dow has actually outperformed the S&P, and in the last ten it barely trails.

FINSUM: This is quite an interesting finding considering how the Dow is generally treated. If you want to play the Dow, check out the SPDR Dow Jones Industrial Average ETF Trust.

(New York)

Wall Street analysts area all over the map about where stocks are headed next year. Some firms are bearish (Morgan Stanley), some are neutral, and some are bullish. Put Bank of America in the latter category, as the bank says that stocks are set to surge in the first couple months of 2020. Calling the year “front-loaded”, Bank of America analysts say that the S&P 500 should rise by 5.2% by March 3rd. Michael Hartnett from BAML says that the combination of easing trade worries, diminished Brexit fears, and loose monetary policy should combine to cause a “melt-up” in risk assets.

FINSUM: We like this call. All the fears for the winter seemed to have ebbed, and there will be a few months before election worries really kick in.

(New York)

Some investors live and die by it, but all should pay attention. The stock-bond ratio is an old investing indicator that can tell you when one asset class may be ready to head higher, and right now it is sending a strong signal. Ned Davis Research says that the ratio tends to bottom before economic recoveries. Therefore, if we have truly hit the bottom of the current economic cycle, then the ratio (S&P 500 divided by the US long-term treasury bond index) should start improving. “Barring an escalation in the trade war, we should see a recovery in early 2020 based on historical lead times”, said Ned Davis Research.

FINSUM: This is a very handy way to think about, and keep track of, risk-on/risk-off.