Global roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Morgan Stanley Wealth Management’s chief investment officer Lisa Shalett sees real rates and China’s weak economy as the biggest short-term risks,
“We believe the complex crosscurrents that have impacted stocks for most of 2023 are likely to persist, validating a cautious response to the “all-clear” signal. We are far from out of the woods, and we prefer an active approach to risk management. Consider preparing for rangebound US stock indexes, neutralizing extreme sector and factor overweights and balancing offense and defense while focusing on quality… The 10-year real rate rose above 2.0 per cent last week, its highest since the Great Financial Crisis. As investors know, it is the fundamental “risk-free” benchmark underpinning most valuation calculations across capital markets … If we are approaching a longer-term regime change for interest rates, as we believe, the implications for equity valuations are significant: Real rates of 1.5 per cent to 2.0 per cent have historically been correlated with price/earnings ratios close to 17, as opposed to the current 20 times forward earnings estimates … [China’s] growth picture has been rapidly deteriorating, as evidenced by purchasing managers’ indexes (PMIs), loan demand, residential construction and inflation that last month reversed to outright deflation … China is plagued by a crisis of confidence, with the household sector exhibiting limited pent-up demand, despite excess savings … Disappointments in China are … likely to reverberate, impacting global demand, currencies and US rates, as policymakers there scramble to revive confidence.”
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Goldman Sachs chief U.S. equity strategist uncovered the stocks active managers are using to play the move to cyclical market sectors,
“The median S&P 500 stock’s return has sharply become more micro-driven this year, representing alpha opportunity for hedge funds and mutual funds … Reflecting the fertile stock picking environment, mutual fund and hedge fund favorites have outperformed in recent months. The most popular mutual fund overweights have outperformed the largest mutual fund underweights by 5 percentage points (10 per cent vs. 5 per cent) since the start of 2Q, although overweights are still trailing underweights by 3 percentage points year-to-date. The most popular hedge fund long positions have outpaced the largest shorts by 21 percentage points year-to-date (24 per cent vs. 3 per cent) after a record stretch of underperformance in 2022 … Hedge funds and mutual funds both increased exposure to the cyclical Energy sector. Hedge funds entered 3Q 115 basis points overweight the sector relative to the Russell 3000, compared with 48 basis points underweight during 1Q…Chevron Corp., and Exxon Mobil, were among the top stocks that generated the most positive alpha for mutual funds. Check Point, Energy Transfer LP, EQT Corp., and Valaris Ltd. rank among hedge fund favorites … There are only six ‘shared favorites’ between our Hedge Fund VIP basket and Mutual Fund Overweight basket, the lowest number in 9 quarters: Cigna Group, Fiserv inc., Mastercard Inc., Uber Technologies Inc., Visa Inc., Workday Inc.
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Conventional economics states that consumer inflation expectations are a vital factor as spending behaviour changes when inflation pressure is taken as a given. So, BMO senior economist Priscilla Thiagamoorthy’s recognition of rising U.S. inflation expectations is a concern, not least for the Federal Reserve,
“The University of Michigan’s consumer sentiment index was unexpectedly revised down to 69.5 in August from a nearly two-year high of 71.6 in the prior month. One-year inflation expectations edged up to 3.5 per cent year-over-year, a three-month high. Meantime, the average inflation forecast over the next five years was stuck at a still-high 3.0 per cent for the third straight month. U.S. gas costs have steadily climbed over the past few weeks and are now at the highest since last autumn. Higher pump prices are weighing on household confidence and the inflation outlook.”
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
