A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
Equity futures indicate a flattish open for markets Monday, but I have no faith in that whatsoever.
Philosopher Friedrich Nietzsche once wrote “In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule,” and if we recognize that global investors are a very large group, this leaves us just waiting for the volatility storm to break.
The Financial Times noted there’s been ‘no place to hide’ for investors in 2018,
“The latest [post crisis market wobble] one is unique: for the first time in a very long while, almost every major asset class has fallen into negative territory for the year. US stock market and US junk bonds were the last two corners to still hold on to narrow gains for 2018. But this month even high-flying technology stocks have been pummeled The biggest danger confronting investors is therefore that the ‘rolling bear market’ — as Morgan Stanley has dubbed the expanding sequence of asset classes suffering losses this year — continues to rumble on, and plays havoc with many popular portfolio construction methods.”
“No hiding place for investors in markets wobble” – Financial Times
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Goldman Sachs strategist David Kostin believes the market sell-off has overshot to the downside,
“S&P 500 fell 4% this week alongside a sharp repricing in growth expectations. Our baseline forecast remains that US GDP growth will gradually decelerate to 1.6% in 4Q 2019 and that consensus earnings growth expectations are too optimistic. However, the sell-off appears to have overshot the fundamentals. We expect continued positive economic data and prospective EPS growth (+7% in 2019) to support an S&P 500 rebound to our year-end target of 2850. The resumption of discretionary buybacks should also provide a tailwind.”
“@SBarlow_ROB GS's Kostin thinks sell-off overdone” – (research excerpt) Twitter
“Markets Rattling Investors, Fed Still Calm” – Fed Watch
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Morgan Stanley strategists are warning that Canada, along with Australia, is at risk of a major slowdown caused by household debt,
“We introduce a new Household Deleveraging Risk Indicator for assessing debt sustainability … Housing/FX scorecard. Australia looks most exposed, combining high household and external leverage, weak domestic housing conditions and potential further macroprudential and structural/tax policy adjustments ahead. Canada and Sweden are next most exposed, given the pressure to delever from slowing housing and tightening monetary policy”
“@SBarlow_ROB Canada: 2nd biggest risk of economic shock from debt deleveraging” – (full table) Twitter
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Citi U.S. equity strategist Tobias Levkovich sounds a bit alarmed at the downdraft in small-cap stocks,
“The extent of small cap underperformance is a bit startling. We heard too many people tell us in September that our sentiment signals were not picking up an already worried investment community. Our counter argument was if that were the case, why weren’t the small cap indices weaker given more leveraged balance sheets and a good number of unprofitable entities in the index? The sharp sell-off in the Russell 2000, meaningfully underperforming the S&P 500, recently suggests that an “adjustment” now has been made. Volatility is not likely to abate quickly. It usually takes time for the Street to rebuild confidence and lead indicators still imply more volatility is in the offing ”
“@SBarlow_ROB Levkovich a bit alarmed at small cap sell-off” – (research excerpt) Twitter
“@SBarlow_ROB Citi: “notable gaps remain between market prices, Fed targets and forecast yields. “ – (research excerpt) Twitter
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Today is a good day for me personally as Red Hat – which I bought in April of this year – was acquired by IBM at a big premium. I am happy with the almost 50-per-cent gain but probably happier I don’t have to make any decisions about my biggest tech holding amid volatility in the sector.
“IBM and Red Hat are better together” – Bloomberg
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Tweet of the Day:
Diversion: “Jeremy Strong Swears That Succession Isn’t About Rupert Murdoch and His Family” – Vulture
Scott Barlow