Displaying items by tag: bull market
Small caps have been sluggish since Q2 2022 most indicated by the poorer returns in the Russell 2000 and S&P 600 Small Cap. However, things could turn around for the smaller companies moving forward. A value tilt is pervasive through many small cap companies and as the yield curve begins to steepen that value tilt will edge out over larger growth companies. The other factor favoring small caps is the pending corporate tax minimum. Only 1 of the S&P 600 small caps will see their liabilities rise but lots of S&P 500 companies will face new tax burdens which they previously avoided. This is a historic opportunity for small caps moving into 2022.
FINSUM: With Powell’s renomination it's more likely the yield curve will steepen as future rate hikes will be priced in but no real indication of a move currently; increasing the likelihood of a small cap comeback.
JPMorgan Chase & Co. is the latest financial firm to sell debt in the U.S. Bond Market, joining the likes of Goldman Sachs, Bank of America and Citigroup Inc.. JPMorgan is selling over $3 billion in bonds with a yield of .97 percentage points over the U.S. Treasuries and 11 year maturity. The flood in financial bonds is a result of the strong earnings posted by the financial industry in the last quarter. Goldman leads the pack with over $9 Billion in new debt issuance. However, some say JPMorgan is the most susceptible to issuance pressure from regulators with debt issuance driving leverage.
FINSUM: Don’t let balance sheet risk get anyone worried, because post 2008 leverage ratios are closely monitored and almost ensure fiscal support pending financial risk.
The housing market has outpaced nearly all expectations as prices are up a staggering 17.7% over the last 12 months. Some bears said this pace has to slow and that simply put there aren’t enough buyers to keep demand boosted this high, but Goldman Sachs sees it differently. They are projecting home prices to grow at 16% over the next year. They believe millennials are just hitting their stride in the buyers market and that a woefully short supply will keep prices elevated. New home construction has been far too sluggish in the post-2008 environment as investors are skittish, but low-interest rates give many the opportunity to buy. All of this puts the U.S. at an estimated 4-million home shortage, which has Goldman extending the horizon for house price growth through 2023, projecting another 6% increase. Others aren’t as bullish; CoreLogic and Freddie Mac are projecting 2.2% and 5.3% respectively.
FINSUM: Extremely low interest rates and glimpses of inflation could prop up home prices for the time being, as excess money has tended to flow disproportionally into assets like real estate.
Value stocks are usually sought after for their relatively cheap prices trading at low P/E ratios or below book values. They had been on a near decade-long losing streak that culminated in the Pandemic crisis, which drove investors to the lofty tech-based growth stocks, but things turned around for value in September 2020 but were once again stalled out by the delta variant. However, as the economy begins to once again stabilize value is coming back with a vengeance. Bankruptcy concerns and thin profit margins are no longer fears, and value is at the ultimate discount. Research Affiliates, and investment strategy firm, value is poised to return between 5-10% in the coming decade. Global vaccine rates are making progress and cyclical sectors and hence then value sectors are going to turn around the way they started to in September 2020.
FINSUM: Value’s comeback seems inevitable, the ultra-low prices are out of wack stability will see value outperforming other factors in the upcoming year.
Markets are fretting over a variety of concerns: spreading delta variant, Chinese regulator crackdown, and Fed taper. However, Goldman Sachs says these risks are overblown, as delta variant will likely be less worrisome economically and their Fed forecast is dovish. They see a sharp turnaround for cyclical assets such as higher equities and higher bond yields in the short run. Near-term optimism will fuel US and Euro equities and most likely boost Japanese stocks as well. Going so far as to recommend shorting long-term euro bonds, and buying economically sensitive currencies like the Norwegian krone and South Korean won, which will appreciate relative to the dollar. This near-term cyclical rally won’t last long as they expect 2022 to deal from a different deck that won’t be as friendly to investors.
FINSUM: Weaker jobs growth will also delay the Fed’s taper, aiding in the cyclical rally.