Developed Countries
The US industrial sector continues to suffer, as yesterday’s release of the factory orders highlighted. Orders declined 13% in April and durable goods orders fell 17.7%, or 7.7% if transportation goods are excluded. The inventories-to-shipments ratio…
The Swedish krona remains one of our Foreign Exchange Strategy team’s preferred G-10 currencies. The real trade-weighted SEK stands well below its long-term fair value model. Moreover, the SEK trades 13.4% and 36.3% below its purchasing power parity…
Since March 9, the US 5-/30-year yield curve has steepened by 68bps. This is a more pronounced steepening than that of the 2-/30-year yield curve because the Fed’s actions have a lower impact on the volatility of T-Bonds than that of T-Notes. This steepening…
BCA Research's US Investment Strategy service believes US profits margins are set to structurally narrow. Except during recessions, S&P 500 profit margins have climbed steadily higher since the early ‘90s. Several factors contributed to the increase in…
A profligate US government where $3 trillion + fiscal packages are passed with a strong bipartisan consensus, rising odds of increased defense and infrastructure spending, a renewed focus on protecting America’s industrial champions from competition (foreign or domestic), and a robust protectionist agenda (again, on both sides of the aisle), are all inherently inflationary and negative for bonds, ceteris paribus. A whiff of inflation would be a positive for the broad equity market, further fueling the “risk on”, liquidity-driven, melt-up phase. However, historically when inflation has entered the 3.7%-4% zone in the past, the broad equity market has stumbled (see chart). Despite these powerful longer-term inflationary forces, our working assumption is that, in the next 9-12 months, headline CPI inflation will only renormalize, rather than surge, as the coronavirus-induced deficient demand and excess supply dynamic will take time to reach a new equilibrium. Bottom Line: We remain constructive on the prospects of the broad equity market on a cyclical 9-12 month time horizon. For a detailed discussion on inflationary forces and their effects on the S&P 500 GICS1 sectors, please refer to this Monday’s Special Report.
The US fiscal deficit is expected to hit 17.9% of GDP this year. The need to buffer the economy against the negative impact of COVID-19 is driving this fiscal profligacy. But even before the virus spread, fiscal policy was rather easy; in 2019, the federal…
BCA Research's US Equity Strategy service believes that the trucking industry is telling us that the path of least resistance remains higher for the SPX in the coming 9-12 months. While the S&P transports index has neither made new all-time highs nor…
The recent strength in the performance of the S&P 1500 trucking index raises questions beyond the equity market. We previously used the relative performance of the Dow Jones Transport index relative to the utility index as a gauge for the behavior of yields.…
BCA Research's Global Fixed Income Strategy service's Reserve Bank of Australia (RBA) monitor may be turning the corner after Australia delivered 125bps of stimulus since June 2019. The Australian unemployment gap has widened dramatically, owing to job losses…
While the S&P transports index has neither made new all-time highs nor outperformed the SPX year-to-date, one economically hypersensitive sub-group, trucking, has been revving its engines and is sending a bullish signal for the broad market (top panel). The S&P 1500 trucking index has stealthily joined the “new all-time highs” club, similar to the biotech index that we mentioned two weeks ago. Likely, as large parts of the economy are on the verge of reopening, this index has priced in a full recovery and a return to normal in the back half of the year. True, the jury is still out on the economic recovery shape and the risk of a second wave is significant along with the recent spike in uncertainty regarding the US election. But stocks continue to climb the proverbial "wall of worry". Bottom Line: Historically, the highly fragmented trucking industry has an excellent track record in leading the SPX and the current message is that the path of least resistance remains higher for the SPX in the coming 9-12 months (bottom panel).