Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Michael Batnick, director of research at New York-based Ritholtz Wealth Management, is getting a lot of questions about the right time to get back into equity markets.
After presenting a bunch of charts showing equity returns surrounding bear markets, he writes,
“Looking through this, one thing is crystal clear to me. It doesn’t matter when you buy, only that you buy. If you’ve been sitting in cash and want to buy but are worried that stocks will go lower, then break up your purchases… What’s critical is that you don’t just make mental plans to get back in, you have to write them down. For example, “I will break up my purchases into four tranches, the first Wednesday of every month for the next four months.”
“When Is the Right Time to Buy Stocks?” – Batnick, Irrelevant Investor
The current market conflagration is different from the financial crisis – it’s a Main Street problem, not a Wall Street calamity – but it’s similar in the sense that the problems manifest in complex financial relationships.
As bad as equity markets have been, credit markets might be worse. And credit markets are much, much bigger.
The current biggest issue is a global shortage of U.S. dollars that is crippling emerging markets. Market volatility led to a mass asset migration out of emerging markets into U.S. Treasuries, starving developing nations of cash and pushing the greenback higher.
Societe Generale’s U.K.-based foreign exchange strategist Kit Juckes wrote (my emphasis), “The biggest thorn in central bankers’ sides is the lack of liquidity and the shortage of dollars across markets … I wrote about this yesterday and the way it makes G10 currencies trade like EM ones … it still looks like the machine that sends money round the world has seized up … We’ve seen a small bounce in oil prices but demand/supply are still horribly out of line with each other and I wouldn’t touch any oil-sensitive currency with a barge pole.”
The loonie, of course, is an oil sensitive currency.
“@SBarlow_ROB From Kit Juckes' morning email: "I wouldn’t touch any oil-sensitive currency with a barge pole" – (research excerpt) Twitter
Morgan Stanley’s U.K.-based cross-asset strategist Andrew Sheets believes that volatility indexes will peak before the equity market rallies,
“We are short of superlatives to describe what [volatility] markets are pricing here. The S&P 500 had seven consecutive days with daily moves larger than 4%, beating the record from 1929 … We think that volatility needs to stabilise before the broader market can heal. There is precedent for this; in 2008, 2011, 2015 and 2018, equity volatility peaked well ahead of the ultimate low. The intuition? After a shock, markets first become comfortable with the level of uncertainty (volatility), then with the level of price. We think that risk/reward for markets is improving; this remains a key unticked box on our checklist.”
This perspective makes a falling CBOE Volatility Index (VIX) a buy signal.
“@SBarlow_ROB MS' Sheets: "We think that volatility needs to stabilise before the broader market can heal" – (research excerpt) Twitter
Newsletter: “The risk that missed payments start to create a cascade of credit defaults seems quite high” – Globe Investor
Diversion: “@SBarlow_ROB What to Know Before You Buy a Live TV Streaming Service “ – Gizmodo
Tweet of the Day:
Early data from state agencies on unemployment claims are stunning. And having tightened eligibility and cut back staff during the expansion, @p_ganong says “there’s no world where all 50 states will be able to handle the influx” /1https://t.co/F5SqVpdlSF— Brendan Greeley (@bhgreeley) March 19, 2020