A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
I spent many hours Wednesday running chart after pointless chart, trying to understand the market sell-off because it was very different in character from the market weakness earlier this month.
Previously rising U.S. bond yields – with their implications of strong economic growth and inflation pressure – were the catalyst for selling. But Wednesday the same sectors that went down because of rising rates – bond proxies like utilities, real estate and consumer staples stocks – were the best performers in the S&P 500.
Investors moved quickly from concerns about yields to worrying about global economic growth, thanks to earnings disappointments from global industrials dependent on international revenue and weaker economic data from China.
Thankfully, Citi’s U.S. equity strategist Tobias Levkovich does not see enough weakness in industrials to warrant further market weakness,
“The proportion of industrial production industry constituents that are showing a drop in business activity is too low to indicate a slowdown appears imminent. Yet, with no new tax cuts to bolster next year’s results, a drop in the S&P 500 EPS growth trend was almost a foregone conclusion. Hence, commentary about peak earnings expansion cannot really be a legitimate catalyst for the recent volatility.”
“@SBarlow_ROB Levkovich: Industrials'-related growth fears overdone” – (research excerpt) Twitter
“Europe attempts comeback after world stocks routed again” – Reuters
“@SBarlow_ROB Flight to bond proxies” – (intraday market chart) Twitter
“Oil prices steady after stock markets plunge” – Reuters
“The market sell-off is more of a liquidity shock, says this Credit Suisse executive” – Bloomberg
Nomura strategists think China is to blame for equity market weakness as speculative fund flows unwind related positions quickly,
“Recent fluctuations in China’s equity markets are viewed as a key driver of this rout. The market’s interest is shifting from global growth stocks adjusting to higher UST 10yr yields in early October towards the weakness of China’s fundamentals. Of course, although a China equity bear market has been widely priced in since August, more severe market perspectives seem emerging among speculative players at the moment. … Without the Chinese authorities’ powerful actions like boosting the stock prices or banning a short-selling in cash markets, short term fast players still prefer bearish trades in Chinese equity markets, keeping global equity market nervous.”
“@SBarlow_ROB Nomura: "market’s interest is shifting from global growth stocks adjusting to higher UST” – (research excerpt) Twitter
“Charting China's declines” – FT Alphaville
Tweet of the Day:
CM on BoC : "Sorry, but we don’t get it. .. there’s nothing in evidence to support what was a much more hawkish tone from the central bank on what lies ahead. " pic.twitter.com/f2nyis2rM8— Scott Barlow (@SBarlow_ROB) October 24, 2018
Diversion: “50 Most Beautiful Cities in the World” – Conde Nast