In today’s briefing:
- Fed Not Concerned About Financial Conditions as US Equity Valuations Resemble Late-1990s
- Steno Signals #71 – A First Taste of the Recession Sell-Off?
- Could This Be The Start of a Major Bearish Episode?
- What A Soft Landing Looks Like
Fed Not Concerned About Financial Conditions as US Equity Valuations Resemble Late-1990s
- Fed Chairman Powell believes that current financial conditions are not tight by historic standards. Normalising financial conditions could be prolonged due to the low term premium in US Treasuries.
- Many investors believe the Fed will be forced to ease policy as tighter settings will eventually imperil financial stability, but high leverage is notably absent at broker-dealers.
- Narrow breadth in the S&P500 leadership in 2023 resembles conditions in the late-1990s that masked valuation compression for those constituents that were not market leaders.
Steno Signals #71 – A First Taste of the Recession Sell-Off?
- Happy Sunday from a wet and cloudy Copenhagen! Market fears are back and the rising term premiums and real rates are making their way through cross asset moves.
- The biggest question to ask right now is whether the pandemic altered the geopolitical and- financial playing field to an extent that will allow >+2% real rates for the next 10-20 years and whether equity multiples can continue to live in a QE world if QE is no longer a thing.
- The repricing of cross asset trends due to rising real rates may not be over yet.
Could This Be The Start of a Major Bearish Episode?
- The S&P 500 is at a key technical crossroad as it tests support at 4100
- The market is oversold, but not as oversold as during the sell-offs in 2022, opening the door to further weakness. Sentiment is turning to indicate a near-term bottom.
- We judge the odds of a year-end rally at 70% and further weakness at 30%.
What A Soft Landing Looks Like
- The U.S. economy appears to be undergoing a soft landing. The global economy may be boosted by a new round of Chinese stimulus.
- Investors can position for this scenario by rotating away from U.S. megacap growth equities to non-U.S. markets.
- However, the risk of a credit event and overly strong U.S. growth may derail that bullish scenario.
💡 Before it’s here, it’s on Smartkarma
Sign Up for Free
The Smartkarma Preview Pass is your entry to the Independent Investment Research Network
- ✓ Unlimited Research Summaries
- ✓ Personalised Alerts
- ✓ Custom Watchlists
- ✓ Company Data and News
- ✓ Events & Webinars
