US President Trump is calling for a payroll tax relief until after the US elections. Australia just announced a EUR 11 billion package to counter the adverse impact of the coronavirus. The European Commission set up a fund yesterday with EUR 25 billion to tackle to economic shock caused by the virus. The UK raised already anticipated fiscal stimulus by another GBP 18 billion. And these are just a selection of the number of measures that is being announced. Most measures are, however, disappointingly limited. The European Commission’s investment fund represents just 0.2% of GDP, and are taken from existing resources. Hence, the reluctance of governments to really open the tabs increases the odd of a global recession. Forecasts for 2020 GDP growth are around 2.0% (2.4% by the OECD) … [Read More...]
5 charts (week 47)
Singapore electronics exports improve significantly Electronics export growth in Singapore, a bellwether for global earnings per share, improved significantly in October. While year-on-year electronics exports still recorded a double-digit decline of 16.4%, the drop was far less severe than in previous months. This was contrary to expectations. The latest exports data suggest global earnings have seen most of their decline, although they are likely to go down again in this quarter and next. After that, things look set to improve, helping equities remain close to all-time highs. Negative surprises The Citi US Economic Surprise Index has dropped below zero, meaning negative surprises outweigh positive macro-economic surprises. Several nowcast surveys are now predicting very little US GDP growth for this quarter. For example… [Read More...]
Why Eurozone stocks have lagged
Since the low point for the equity markets during the global financial crisis in 2009, Eurozone equities have lagged their US counterparts by an impressive 300%. Why is this? By the look of things, it’s a combination of different factors. The first – and most important – reason is that US companies have performed much better than their European counterparts when it comes to corporate earnings. The graph below shows that since March 2009, the earnings per share of companies in the S&P 500 have increased 170%, compared with an increase in earnings of precisely 0% for companies in the Eurostoxx 50. Some of this difference can be explained by share buybacks, but for the most part it can simply be put down to profitability. Heavyweights The second reason is … [Read More...]
Is the ‘great rotation’ upon us?
Stock markets have been fairly quiet in recent days, moving higher most of the time. But underneath, a spectacular rotation has been going on. Value stocks – which have lagged growth stocks for almost 15 years (see also the chart below) – have beaten growth stocks by a wide margin. But is this a signal that the ‘great rotation’ has begun? Value outperforms growth Despite having underperformed in the past decade and a half, value stocks have outperformed growth stocks since 1975. A key explanation for this long-term trend is that investors tend to be overly negative about dull, slow-growing value stocks and are generally too enthusiastic about growth stocks, which seem to offer limitless potential. This extrapolation of future expectations has to be adjusted at some… [Read More...]
A missed opportunity
Economic growth in the Eurozone has slumped. Germany has even slipped into recession territory and yields are still extremely low, or even negative. Nevertheless, there is a noticeable absence of fiscal policy stimulus. Some countries aren’t really in a position to, but others are simply unwilling. In 2018 economic growth in the Eurozone came in at 1.8%. This year, the figure is just above 1% and next year it is unlikely to even reach that. In short, the Eurozone economy could really use a boost – mainly from governments. But will that actually happen? Given the mass ‘disobedience’ of various ECB members – following the central bank’s decision to introduce yet another round of quantitative easing, but without an explicit end date this time – little can… [Read More...]
It’s too early to get too gloomy about stocks
An unexpected and unfortunate outbreak of the coronavirus puts pressure on the sustainability of the increase in global growth momentum. The fact that the uptick in momentum had only just started makes it relatively vulnerable to any negative shocks. In addition, the significant amount of uncertainty related to containing the virus as well as its economic impact requires an appropriate cautious stance on risky assets. ‘Appropriate’, however, does not imply getting too gloomy too early, as other factors remain positive for risky assets, and for equities in particular. Global health emergency On 30 January, the World Health Organization declared a global health emergency related to the coronavirus outbreak in China. Since then, an increasing list of countries and companies have taken numerous measures to prevent the virus from … [Read More...]
2019 in tweeted charts!
Below is a relatively concise overview of financial markets in 2019 using a selection of charts I tweeted throughout the year. While this probably aggravates the already pronounced calendar-year thinking of investors, it also offers potential insights to the, at times erratic, behavior of financial markets. For example, looking back chronologically towards 2019 reveals that while there was an awful lot of negative news surrounding ‘the trade war’ there was also a continuous stream of positive news. Most of this was related to a game-changer swing in monetary policy. As in many years since the financial crises, central banks were the most dominant factor in financial markets in 2019. Those who were confident enough to rely on them, once again did very, very well. January In January, … [Read More...]
5 charts
Regime shift US stocks have outperformed their global and emerging counterparts by a mile in the last ten years. But this hasn’t always been the case. For example, in the decade prior to that, the S&P 500 Index realized a negative return while emerging markets skyrocketed 188%. So what about the ten years to come? Given the lofty valuation of US stocks, the CAPE being above 30, stock markets outside the US may well outperform. That said, the performance gap between US and the rest of the world can partly be explained by the US being home to a number of technology firms that have reshaped many aspects of daily life. This is not something that will shift overnight. Is the manufacturing glass half full or half empty? … [Read More...]
Is the strength of the US consumer overrated?
The US consumer, which represents a bigger share of global GDP than China’s economy, has been the main driver of US GDP growth in recent quarters. Spurred by job and wage growth, consumer spending has been robust. And from a top-down perspective, there are few signs that this is about to change. However, some underlying factors suggest that weaknesses in US consumer spending are starting to appear. For example, in recent weeks, initial jobless claims started to rise gradually to levels that could raise the question if we have seen the bottom in unemployment. Last week, however, initial jobless claims fell from 228K to 213K, and also lower than expected making it difficult to conclude initial jobless claims are on an ascending path. Yet it is… [Read More...]
The average return doesn’t exist (2020 edition)
Here’s this year’s update of the ‘average return doesn’t exist’ blog showing that the average return on equities is mostly a statistic, and is seldomly seen in reality. And last year is another brilliant example of that. The Dow Jones Industrial Average realized a a positive return of more than 22% in 2019, miles away from the average return of 7.4% since 1900. It also underpins that using this long-term average for forecasting annual returns, as many professional forecasters tend to do, will do little good for your ‘guru’ status. Those who dare to put in ‘obviously’ far too bearish or far too bullish forecasts have (much) better odds in getting it right. The graph below shows the calendar year returns on the Dow Jones Industrial … [Read More...]