(Reuters) – Record upside surprises in U.S. economic data are bolstering the case for a “V” shaped recovery from the COVID-19 recession and boosting investor confidence in a stock rally that has already delivered hefty gains in recent months.
Citigroup’s Economic Surprise Index .CESIUSD>, which tracks economic data relative to economists’ expectations, hit a record high this month, reflecting recent turnarounds in key areas such as unemployment that have helped extend the S&P 500’s gain to 40% since late March. The stock index jumped 1.9% on Tuesday, helped by a record surge in May retail sales.
(GRAPHIC – Could it be a ‘V’?: https://fingfx.thomsonreuters.com/gfx/mkt/xlbpggkrqpq/Pasted%20image%201592323348223.png)
The improving data, along with signals that the Federal Reserve remains ready to backstop the U.S. economy, have eased concerns that the stocks rally has ignored the economic devastation wrought by the pandemic and resulting lockdowns.
“The safety-net (Fed Chair Jerome) Powell has put in place is not going away any time soon,” said Edward Moya, senior market analyst at OANDA. “While we will see the economy struggle, you won’t likely see a sustained pullback in equities because of all the stimulus that has been thrown at the market.”
Many investors doubt the market’s rebound can run much further. A recent surge of COVID-19 cases in some U.S. states and a new cluster of cases in China have raised concerns over a coronavirus resurgence, while subdued demand for commodities such as oil signal a potentially slow comeback in global growth.
Influential U.S. investors, including David Tepper and Stanley Druckenmiller, in May described markets as over-valued and with terrible risk-reward, with Druckenmiller dismissing V-recovery hopes as “a fantasy.”
Still, the ranks of doubters have thinned lately, while bullish sentiment has grown. The percentage of fund managers who believe the bounce is a bear market rally that will eventually reverse fell to just over half in June, from more than two-thirds last month, a survey from BofA Global Research showed.
“Positive sentiment begets positive sentiment,” said Torsten Slok, chief economist at Deutsche Bank Securities. “People are starting to think that this is not a bear market rally, that this is more permanent.”
The market’s gains also appear to be attracting inflows of cash from the sidelines. Cash levels among fund managers in BofA’s survey registered their biggest drop in more than a decade in June, and net equity exposure among hedge funds soared to 52% from 34% in May.
Investors poured a net $20.4 billion into equity-focused mutual funds in the week ending June 10, the largest one-week inflow since 2007, Lipper data showed.
(GRAPHIC – U.S. Domestic Stock Fund Flows: https://fingfx.thomsonreuters.com/gfx/mkt/nmovakendva/n6Jru-u-s-domestic-stock-fund-flows-nbsp-%20(1).png)
The rally has exacerbated some investor concerns, including those over stock valuations. The S&P 500’s forward price/earnings ratio, a closely followed valuation metric, now stands at 22, a level that was last seen 20 years ago, during the dot-com boom.
For many investors, “it’s still love/hate,” said Joe Saluzzi, co-manager of trading at Themis Trading. “If you’re a fund manager, you have to be in the market because you have to beat your benchmark, so a lot of managers have to get in there and performance chase.”
(GRAPHIC – S&P 500 forward PE hits dot-com highs: https://fingfx.thomsonreuters.com/gfx/mkt/yzdvxdmojvx/Annotation%202020-06-16%20102318.jpg)
At the same time, gains in the prices of oil and some other commodities have slowed in recent weeks, raising concerns that weak demand for raw materials may indicate a lackluster worldwide recovery.
The Organization for Economic Cooperation and Development forecast the global economy could contract by 7.6% if the world sees a second wave of the coronavirus outbreak.
Still, there are signs that investors remain bullish despite the market’s recent gains. The proportion of investors buying S&P 500 bullish call options versus bearish put options rose sharply last week, suggesting some traders are betting the market will continue rising.
(Reporting by Noel Randewich; additional reporting by April Joyner in New York; Editing by Ira Iosebashvili and Dan Grebler)
OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.
However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.
The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.
Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.
The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.
The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.
This report by The Canadian Press was first published Oct. 17, 2024.
OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.
In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.
The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.
Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.
In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.
It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.
This report by The Canadian Press was first published Oct 16, 2024.
OTTAWA – Statistics Canada says manufacturing sales in August fell to their lowest level since January 2022 as sales in the primary metal and petroleum and coal product subsectors fell.
The agency says manufacturing sales fell 1.3 per cent to $69.4 billion in August, after rising 1.1 per cent in July.
The drop came as sales in the primary metal subsector dropped 6.4 per cent to $5.3 billion in August, on lower prices and lower volumes.
Sales in the petroleum and coal product subsector fell 3.7 per cent to $7.8 billion in August on lower prices.
Meanwhile, sales of aerospace products and parts rose 7.3 per cent to $2.7 billion in August and wood product sales increased 3.8 per cent to $3.1 billion.
Overall manufacturing sales in constant dollars fell 0.8 per cent in August.
This report by The Canadian Press was first published Oct. 16, 2024.
