Displaying items by tag: bear market

(New York)

The market just hit fresh highs and we are making progress on the trade war; everything is good right? Wrong, says UBS. The bank has just put out an unusually bold warning, saying markets are likely headed for a big decline. Why? Earnings. Earnings growth forecasts for 2020 have tumbled from a peak of 23% to the just 1% now, a huge fall in expectations. That all comes as the growth backdrop for the economy is weakening, and signals that valuation multiples are likely to contract. “Every bear market of the past 50 years has witnessed an actual decline in S&P 500 forward earnings … Ultimately, the most vulnerable macro backdrop for equities occurs when forward earnings growth turns negative as LEIs are trending downward (pushing [price-to-earnings] lower)” says UBS.

FINSUM: An earnings bear market can easily turn into a real bear market, though it doesn’t always happen.

(New York)

It may seem overly bearish right now, but put this one in the “take note” category. A hedge fund manager on Bloomberg yesterday argued that the market looks set for a bear market downturn very similar to last year. According to the manager, a mix of liquidity constraints, insufficient Fed support, and large geopolitical issues, could all combine to drive prices down 20% or more in benchmark indices. The most interesting part of this argument is that he contends the pressures will create this downturn in the next few weeks.

FINSUM: Last year’s bear market was principally about investors worrying the Fed would hike the market into a recession. That is a completely different backdrop from right now. We don’t discount the chances for a downturn, but this logic does not seem sound to us.

(New York)

Wall Street research teams have been pretty split in their market outlooks recently. While the general mood is always bullish in equity research, an inordinate number of banks have been pessimistic lately. Do not count Morgan Stanley in that group, as they have just come out with what cannot be considered anything other than a bullish note given the current environment. The bank says there is only an 11.4% chance of a recession in the next year. Morgan Stanley also pointed out that each asset class has its own positioning right now, saying “Rates are generally pricing in a higher risk of recession than equities, giving equities greater relative downside should a recession emerge and bonds greater relative downside should economic growth begin to trough/reaccelerate”.

FINSUM: As Morgan Stanley also added in this piece, the real time to worry is if companies start cutting jobs to maintain margins. Once that happens, consumer spending and sentiment will fall rapidly.

(New York)

The world’s biggest family offices are feeling very bearish. A new study by UBS found that over half of them are expecting a recession and over 40% of them are increasing their cash reserves. 45% are taking steps to mitigate risk. Family offices have struggled in the last year, averaging only a ~5% return; much lower than the 9-13% returns they typically target.

FINSUM: Normally speaking we might think this is a good counter-indicator, but family offices represent so much AUM that they could have a real impact on the market.