A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
JP Morgan analysts are warning investors that bond markets have changed and no longer provide the same benefits as previously,
“'Investors must rethink ‘safe-havens’ in their portfolio now that bonds simply can’t offer the same combination of portfolio protection and positive income that they have in the past,' said John Bilton, head of global multi-asset strategy at JPMorgan Asset Management. US long-dated Treasuries are forecast to deliver annualised returns of just 1.6 per cent over the next 10 to 15 years, according to JPMAM’s latest long-term capital markets assumptions study … The subdued outlook for fixed income is offset by improvements in expected returns from equities in the US, Europe, Japan and emerging markets.”
Canadian yields have historically tracked U.S. bonds closely so the same trend would apply domestically. This would cause, among other things, major problems for pension funds that depend on long-term bond yields to fund future liabilities.
“Investors need to rethink the income appeal of bonds” – Financial Times (paywall)
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The central question for investors in 2020 is whether the stabilization of global economic growth translates into a reacceleration or fizzles out. The relative returns of dividend stocks – which perform better in slow growth, low rate environments – and commodity stocks that track global manufacturing activity, will depend on it.
Citi’s global macro strategist Jeremy Hale is pessimistic regarding a growth recovery,
“After a risk asset correction, central bank policy becomes easy globally, balance sheets are expanding, keeping FCI loose throughout. In 2016, eventually the hard data picked up momentum (even before Trump was elected). We can’t say the same this time round however. The hard data is not turning higher, in fact, is resuming its course lower again. A year ago, global growth was decelerating faster than the consensus had expected and today, Citi’s hard data change index remains negative.”
“@SBarlow_ROB C's Hale is not a reflationista” – (research excerpt) Twitter
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Where the U.S. is concerned, Goldman Sachs economist Jan Hatzius is bullish on the economy,
“We expect growth to accelerate modestly to an above-consensus pace of 2¼-2½%, for several reasons. First, the drag from the trade war should fade absent further escalation. Second, easier financial conditions should provide a boost that is already becoming evident in the housing data. Third, we expect the strength in consumer spending to outlast the weakness in business investment. Fourth, the drag from the inventory adjustment is probably nearing an end.”
“@SBarlow_ROB GS: U.S. economy set to accelerate” – (research excerpt) Twitter
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Morgan Stanley’s Michael Wilson is looking for marginal improvement in U.S. growth, but no profit growth,
“With just trendline growth in the US, our assumption is that margin pressure will remain elevated for the average US company, given the limited slack in the labor market. Operating leverage is now decidedly negative across a wide swath of companies and sectors based on the latest earnings results. GDP growth of 1.8% combined with lower margins results in little, if any EPS in the US next year for the S&P 500. Smaller-capitalization companies could see a second full year of negative EPS growth.”
“@SBarlow_ROB MS's Wilson: Modest eco recovery, no profit growth” – (research excerpt) Twitter
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Diversion: “The 50 Best Nonfiction Books of the Past 25 Years” – Slate
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