A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
Not all major North American pension funds rebalance their portfolio asset allocation every quarter, but Citi warns that the ones that do could cause a significant sell-off in fixed income markets,
"The combination of the 15% S&P sell-off and a rally in rates this quarter is negative for pension fund demand for duration. In the near term, pensions that rebalance on a quarterly basis are likely to sell fixed income to maintain target allocations, which is a sell-off risk for rates in January, in our opinion.”
This is an example of structural, non-fundamental issues that can blindside investors.
“@SBarlow_ROB C: "pensions that rebalance on a quarterly basis are likely to sell fixed income to maintain target allocations, which is a sell-off risk for rates in January"’ – (research excerpt) Twitter
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Credit spreads, the amount that yields on high yield and BBB-rated corporate bonds exceed government yields, have been reliable indicators of approaching bear markets. A Financial Times report notes intense selling in corporate debt funds, which is not a good sign for markets in 2019,
“The credit premium on high-yield bonds — that is, the extra yield being demanded compared to risk-free Treasuries — has jumped by 1.1 per cent since the start of December, according to an index from ICE Data Services. That is the biggest rise in more than seven years, sending the yield on the index above 8 per cent. Meanwhile, the average price of leveraged loans — that is, loans to risky borrowers such as companies taken private in leveraged buyouts — has fallen 3.1 per cent this month to just below 94 cents on the dollar … Investors pulled $4bn from funds invested in US junk bonds for the week to December 26, the seventh straight week of withdrawals and the largest weekly outflow since the beginning of October.”
“Investors flee risky US corporate debt” – Financial Times (paywall)
“@profsufi Remember, credit spreads a far better predictor of real economy than the stock market. Not yet 2015 levels, but it is getting more serious. aeaweb.org/articles?id=10…” – (chart) Twitter
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The M.I.T. Technology detailed the year when technology could “seemingly do no right,”
“Facebook hasn’t been able to stop its product from being used as a platform for organized hate crimes. Instead, it’s dabbled in fake news and propaganda of its own, admitting that it hired a PR firm to attack billionaire George Soros and other critics of the social network. In December, the Southern Poverty Law Center joined other groups in asking for a change at the top. They called for founder Mark Zuckerberg to step down as the company’s chairman (but remain as CEO) to allow more independent oversight.”
“The biggest technology failures of 2018” – M.I.T. Technology Review
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Citi’s U.S. equity strategist Tobias Levkovich attributes a lot of the recent market volatility to the momentum stocks that displayed as much speed to the downside as they did on the way up,
“The same chart-driven momentum that drove stocks higher earlier this year now appears to be doing the same in reverse. In some ways, fundamentals have not mattered enough as pure momentum and low vol strategies dominated the factor frenzy trading activity and that can cut both ways. As interest rates slid, unloved areas like Utilities came to the fore, surprising almost everyone.”
“@SBarlow_ROB C: Momentum cuts both ways’ – (research excerpt) Twitter
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Tweet of the Day:
Diversion: “Pictures of the year: Environment” – Reuters
Newsletter: “The good times are over until further notice” – Globe Investor
Scott Barlow