Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Goldman Sachs strategist Cormac Conners sees the end of TINA – ‘there is no alternative to equities’ – and the beginning of TARA – ‘there are reasonable alternatives’,
“The rise in yields since the start of 2022 along with the recent acceleration of flows into bond and money market funds has led many investors to ask what the magnitude of household equity selling will be in 2023. The current level of market yields clearly shows that the era of TINA (’There Is No Alternative’) has ended and that now there are reasonable alternatives (TARA) to equities. Although equity demand remained resilient amid sharply rising rates in 2022, we believe the year-to-date flows into money market and bond funds signal an escalating household shift away from equities and toward the alternatives … In our base case, we estimate households will be net sellers of $750 billion in equities in 2023. GS economists forecast that the 10-year yield will rise from 3.6 per cent today to 4.2 per cent by the end of 2023 while the personal savings rate will rise from 4.5 per cent to 5.3 per cent. $750 billion of net selling would reverse the previous six quarters of household equity demand.”
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BofA Securities strategist Michael Hartnett thinks money markets are the next bubble,
“The Biggest Picture: the next bubble … Money market fund AUM [assets under management] surges above $5.1-trillion, up more than $300-billion past 4 weeks; prior 2 surges ‘08/’20 coincided with big Fed cuts …. History of Bears: ain’t nothing more dangerous than a bear at the end of a bear market and…inflation set to fall sharply, oil down, rates down, PMIs stabilizing, housing reacting to lower rates, lots of job openings still to fill … Bears shouldn’t be dogmatically bearish 15 months into bear market; but still … History, positioning, policy & profits reasons we think stock market to attempt new lows next 3-6 months…”
“BofA’s Hartnett ... still bearish” – (research excerpt) Twitter
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Jefferies’ Greed & fear report forecasts the end of the Federal Reserve rate hiking cycle,
“The most interesting aspect of the markets’ reaction to the latest 25bp hike in the Federal funds rate to 4.75- 5.0 per cent is the reaction of the gold price which rose by 1.5 per cent or US$30 yesterday to US$1,970/oz. This suggests growing conviction that the Fed tightening cycle is coming to an end and that the Fed, sooner rather than later, will for all practical purposes fudge its 2-per-cent inflation target. The reason for this conviction, which GREED & fear agrees with, is the assumption that credit conditions will tighten in the context of recent banking-related stresses. The money markets are now discounting 50-75bp of rate cuts by the end of this year. "
“Jefferies: “growing conviction that the Fed tightening cycle is coming to an end”” – (research excerpt) Twitter
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Diversion: “The Most Popular Dog Breeds on Instagram Are Also the Sickest” – Gizmodo
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