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Global corporate debt issuance is exceptionally strong in 2020 and, according to Bloomberg, has reached $2.6 trillion so far this year, a record. The rise in corporate leverage has many commentators and the press sounding alarm bells about the risk of…
While the Federal Reserve did not adjust policy on Wednesday, Fed Chair Powell set out to clarify the parameters surrounding policy tightening under the new average inflation framework announced at the Jackson Hole symposium. The Fed has chosen a…
The Bank of England met yesterday and left policy unchanged. However, the meeting’s minutes revealed that the MPC is actively exploring the implementation of a negative Bank rate. So serious is the idea, the BoE is in talks with Prudential Regulation…
Undoubtedly, the SPX is fully valued trading near an all-time 12-month forward P/E multiple and an all-time high trailing P/S ratio. Correcting the forward P/E multiple for the 5-year forward growth rate and creating an S&P 500 forward P/E/G ratio is revealing. The SPX P/E/G ratio has exploded to 4 standard deviations above the historical mean (using I/B/E/S data back to 1985) with a 2 handle. Not only the jump in the 12-month forward P/E (courtesy of a gap down in EPS) has slingshot the P/E/G ratio to the stratosphere, but also sell-side analysts throwing in the towel in long-term SPX EPS growth projections has contributed to the SPX P/E/G ratio's parabolic rise. Such exuberance is clearly unsustainable. Our sense is that the S&P 500 P/E/G ratio will come back down to earth as the trifecta of rising 12-month EPS estimates, sideways to lower move in the SPX in the near-term and a recovery in the 5-year EPS growth rate, will exert enormous gravitational pull. Bottom Line: We continue to recommend investors keep some powder dry and refrain from deploying capital at the current juncture. A better entry point in the broad equity market will likely materialize in late Q4.
BCA Research's US Bond Strategy service assess the tech stock sell off and its implications on bonds. Bond yields correlate most strongly with: The performance of cyclical equities over defensive equities. The ratio of CRB Raw Industrials over…
Many commentators have quipped that we are not in a V-shaped, nor a U-shaped or W-shaped recovery but a K-shaped one where a few winners are reaping large gains while considerable segments of the economy are under extreme duress. Paradoxically, strong…
In response to the production shutdowns and decreased run rates that have plagued the US and global economy since March, US inventories contracted at their quickest three-month rate since the depth of the Great Financial Crisis. Yet, as the economy re-opens…
August's retail sales print came in weaker than expected at 0.6% month over month, missing expectations of 1% and down from July's revised print of 0.9%. Meanwhile, the retail sales control group actually contracted by 0.1% and failed to meet expectations of…
Overweight We reiterate our recent upgrade to overweight in the S&P materials sector. Since the late-July inception, materials stocks have been steadily climbing and also propelling our cyclicals/defensives portfolio bent. Given the rosy macro outlook more gains are in store. Materials stocks are hyper-sensitive to the global reflation cycle and China’s aggressive stimulus is reverberating across the Pacific. Namely the Chinese are opening up the fiscal and credit taps at a breakneck pace (bottom panel). Already, the economy is responding and has likely returned to the trend growth trajectory observed prior to the pandemic. The Chinese bond and stock markets are heeding the message of the authorities and corroborate that the economic recovery is gaining steam (top panel). All of this suggests that global trade is on the mend and the commodity-laden S&P materials sector remains in the driver’s seat. Bottom Line: Stay overweight the S&P materials index.
BCA Research's US Bond Strategy service concludes that without additional household income support from Congress of $500 to $800 billion, consumer spending will massively disappoint expectations over the next 6-12 months. The CARES act played an essential…