Displaying items by tag: valuations

Markets are flummoxed as to the variety of risks right now, and it is just unclear how aggressively if at all the Fed and Biden are going to respond to the economic threats. There are two ways to capitalize on the current dip that is hitting your portfolio. The first is tax-loss harvesting; these risks are ones that are more than a month long which could give you the opportunity to repurchase the drops you made in the upcoming months. For those investors who feel adequately equipped in the tax-loss harvesting space, rebalancing is the main tool. That is if your portfolio has lost 10% value inequities with the drops, then up your share to meet the ratios you were at pre-dip. Once stocks have rebounded you can capitalize and re-tool in the opposite direction to maintain the portfolio balance you want in order to serve your risk preferences.

Finsum: Don’t sit during the volatility, but don’t sell off unless you are going to capitalize on the tax efficiency in your portfolio.

Finding a successful stock market predictor is like finding a needle in a haystack, but JPMorgan says they have the indicator, and now is the time to buy in the stock market. The buying guide is when the CBOE Volatility Index grows by over half of its one-month moving average. This has a near bulletproof historical record, only falling during recessions in the last 30 years. Markets gained an average of 9% in the equities in the two quarters after the metric was triggered. Overall, JPMorgan is bullish about the near future in equities and believes there is a lot of runway ahead.

Finsum: Metrics like this can be an anomaly or indicative of something structural underneath, still a recession isn’t out of question with Fed taper tantrum possibilities.

ESG has been for 2021 what the dotcom expansion was for the year 2000, but maybe that growth will fall off like tech did in the early 2000s. This month was startling for the ESG investors as debt issuance took a dive. Green bond issuance slumped 28% and other categories like social bond sales and sustainability loan offerings were down 54% and 49% (respectively) month-to-month. Annually ESG is still in a wonderful place in comparison to last year as the cumulative bonds are over $500 billion ahead when compared through the first 10 months. This volume is concerning still as investors had higher projections for 2021 than are currently being met.

FINSUM: ESG is nowhere near over but ‘faux’ green bonds could be catching enough attention to slow the ESG trend.

(New York)

UBS just put out a very interesting warning to a large segment of the equity market. As part of their overall market outlook update, UBS explained their view on earnings and the direction of the S&P 500. There are two very notable points they made. Firstly, and most importantly, they reminded investors to stop fretting over valuations. In their words “While valuations are higher than average, we remind investors that valuations have no correlation with market returns over time horizons less than three years … And valuations typically don't contract meaningfully unless investors are concerned about a sharp growth slowdown or a policy error by central banks. And secondly, they think the S&P 500 will rise 11.5% by the end of 2022.

FINSUM: This is a brilliant reminder—equity valuations mean very little and are more a reflection of macro outlook than a concern in their own right.

(San Francisco)

Many investors are worried that the huge growth in ESG assets might be causing a bubble in the most common stocks in ESG funds. However, the reality is that they are not. According to Bridgewater Associates: “The shift to ESG appears to be still in its early innings. Investor positioning in sustainable equities is not yet overextended … The US ESG index looks very similar to the aggregate market, and much less frothy than stocks that have been most popular with retail investors where we think valuations are most stretched”.

FINSUM: In other words, despite all the hype about ESG asset growth, overall valuations are in line with the broader market so there is no specific risk to ESG funds.