Displaying items by tag: recession

Thursday, 04 June 2020 17:18

Hedge Funds Prepare for a Big Market Downturn

(New York)

Investment bank research teams all over Wall Street have been sounding the alarm about how untether from reality markets seem to be. Many are warning investors of another big fall in stocks, and at the same time are telling corporate customers to tap markets for funding as much as they can before another fall. Now hedge funds are joining too, saying it is time to pull back. One manager said “The markets are priced to perfection … The stability in equity markets does not reflect the job losses and the insolvencies ahead of us globally”. Paul Singer of Elliott Management made a specific call, saying “our gut tells us that a 50 per cent or deeper decline from the February top might be the ultimate path of global stock markets”.


FINSUM: In principal a big fall seems warranted, but it is hard to fight the Fed.

Published in Eq: Total Market

(Washington)

The Center for Disease Control made a pretty worrying announcement today. The CDC has previously warned that American could see a big uptick of the COVID-19 virus in the Fall, when temperatures cool down and flu season ramps up. It echoed that more strongly this week, citing evidence that the virus is gaining ground in the southern hemisphere as their winter takes hold. According to Robert Redfield, head of the CDC, “We’ve seen evidence that the concerns it would go south in the southern hemisphere like flu [are coming true], and you’re seeing what’s happening in Brazil now … And then when the southern hemisphere is over I suspect it will reground itself in the north”.


FINSUM: The reality is that a vaccine will not be ready before the next flu season starts, so it is pretty easy to imagine that the virus might see a big second wave in the Fall that leads to another lockdown.

Published in Eq: Total Market
Wednesday, 20 May 2020 10:53

The Bond Market is Shouting Caution

(New York)

The bond market is usually ahead of the stock market in predicting and reacting to the economy. It seems to be doing so again. While stocks have had a huge run higher, bond yields have largely been stuck at very low levels. The ultra-low yields of around 0.7% on the ten-year Treasury mean that bond investors see a long, hard, recovery looming and many years of continued aggressive monetary stimulus by the Fed.


FINSUM: Stocks seemed to have gotten a dose of realism over the last two weeks, but yields may be more reflective of the difficulty of the recovery to come.

Published in Bonds: Treasuries
Monday, 18 May 2020 16:39

Why Another Big Stock Drop is Brewing

(New York)

The S&P 500 hit a wall last week and saw its worst performance in a couple of months. Today notwithstanding, the market could be in for another big fall, according to Barron’s. Stocks fell 2.7% and it could be a sign that a reversal is coming. According to Nomura, “If [the S&P 500] continues to fail, you’ll hear about topping patterns, lower highs, exhaustion, and a lack of momentum”.


FINSUM: So the argument here is basically “death spiral caused by attrition”, so sort of like someone pushing a boulder up a hill and when they can’t quite get it to the top, they tumble back down. We are inclined to disagree here given that the Fed is sending such strong support signals.

Published in Eq: Total Market

(New York)

Data released today painted a very grim picture of the economy. The data was bad in its own right, but what was very disheartening is that it showed that one of the supposed bright spots of the economy is actually doing poorly. Retail sales fell a whopping 16.4% in April after also falling steeply in March, the worst tumble in American history. Car dealerships and gasoline, which comprise a big part of retail sales, were slaughtered. Even grocery sales—one of the areas that seemed to be doing well—dropped 13% (!). The only bright spot was ecommerce, which still only rose a little over 8%.


FINSUM: This is a pretty devastating report. The big question is whether this speaks to the state of the US consumer (which to some extent it obviously does) vs to what extent it is just a temporary fear of the virus. We think this recession is going to last until at least the end of the year.

Published in Eq: Total Market
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