Displaying items by tag: stocks

(New York)

As almost all investors are aware at this point, global markets, including the US, saw huge moves in yields yesterday. Trading of the 10-year US Treasury bonds saw yields as high as 3.22% today, sharply higher than just a week ago. The Dollar also soared. This led to a big selloff in stocks as well as major losses across emerging markets and US corporate bonds.

FINSUM: In our view, there are two ways to interpret this big move higher in yields. One is that it was just reactionary to new US economic data and that yields will stall again. The other is that the market has finally woken up to the reality that higher rates and yields are a certainty and that expectations need to be reset. We favor the latter view and think this could be a paradigm-shifting move that finally sparks losses in bonds and rate-sensitive stocks.

(Miami)

Anyone who has been even remotely watching the real estate market this year will note that the housing sector has been struggling. The well documented issues in the real estate market have caused housing stocks to have a very weak year, with multiple homebuilders recently hitting 52-week lows. This has made some worry that trouble in housing may be a leading indicator of an economic downturn to come. However, historically speaking, the opposite has been the case. Housing (combined with automotives) account for just 6.5% of GDP right now, the historical low end of their range, which is good news. Traditionally, it has been when housing gets to be a major part of the economy (e.g. 10% pre-Crisis) that trouble comes.

FINSUM: The trouble in housing has much less to do with the wider economy than it does with industry-specific factors like demographics, planning restrictions, and saturation. We do not expect housing to be necessarily representative of the direction of the US economy.

(New York)

The biggest dividend sectors, such as utilities and REITs, are getting hammered alongside the selloff in bonds. With treasury yields surging on Wednesday, utilities and REITs fell as much as bond prices. Dividend stocks had been experiencing a month of strong performance, but fears have been rising since the last Fed meeting, when the central bank took on a decidedly more hawkish tone.

FINSUM: We are concerned for dividend stocks right now because we think the big move higher in yields might have reset the market’s thresholds. Is the next stop 3.5% on the 10-year?

(Istanbul)

The big selloff in bonds has caused a wipeout in emerging markets. The sector, which has seen broad turmoil this year, just witnessed its biggest selloff since March. That fact is quite eye-opening given that the period includes all the worries over Turkey. The big losses have largely been driven by the appreciating Dollar, which hurts EM economies and assets. With the US economy going so well and the Fed likely to increase the pace of hikes, EMs look vulnerable. The MSCI EM Index fell 2% today.

FINSUM: There are some idiosyncratic problems, but EM economies don’t look as weak as this year’s market performance would suggest. It is really US strength that is hurting EM assets.

(New York)

Have you heard of the new “doom loop”? The term may seem vaguely familiar, and follows in a long line of sensationalist financial terms. Just like in its origin during the European debt crisis, the term once again refers to a European state sinking under the crushing weight of its own debt. You guessed it, Italy. The doom loop refers to the European bank habit of loading up on sovereign bonds, and in turn creating a negative reinforcment cycle where bonds fall in value, which leads to serious concerns over a bank meltdown, which then exacerbate the original economic fears. That is exactly what is now occurring after Italian bonds sold off steeply following the country’s wild budget approval.

FINSUM: Italy is one of the very largest debt markets and economies in the world, and a full scale meltdown there would surely impact global markets, even the Teflon-coated US stock market.