An optimistic start to the week is threatened, with a decline in stock futures. Some point to a senior regulatory official in China who warned of the formation of bubbles in the US and European markets and elsewhere.
Whether you are restless or at ease, ours call of the day, by Julien Bittel, Pictet Asset Management’s multi-asset fund manager, offers unique advice right now: diversify your portfolio.
Bittel’s concerns stem in part from what he considers to be priceless bad news right now. “We feel given the speculative extremes that are currently occurring, that there could be a race to the exit similar to the one we witnessed in 1987, where you know the market can fall rapidly by 30% … for two months “he told MarketWatch in an interview.
In a storm of charts, he traverses his point of view, starting with equity valuations, noting that some of the benefits of the view “are about to be exploited more.” The following graph includes a number of valuation metrics that have been closely correlated with future returns since the early 1980s.
“Now what you can see here is that, at the current valuation extremes, this would suggest that returns on equity would be around 29% year-on-year, with 12 months ahead,” he said. Although in March, annual yields are expected to increase by around 55%.
The following Bittel chart shows a compound equity valuation score, which is currently at the 98th percentile. “So when it’s high, you already know that valuations are very expensive,” he said. Another way of looking at it, “only 1.4% of the time in the last 40 years stocks have been so expensive” according to this measure.
The yields on rising bonds, which have been sweeping the financial markets, are the subject of the following chart. “Here’s the 10- to 2-year U.S. yield curve, it’s currently 130 basis points of the curve’s minimum investment in August 2019,” Bittel said. An investment refers to when maturities with a longer date produce less than those with shorter maturities.
The last three times it happened was in August 1990, February 2001 and November 2007, and “historically, this degree of subsequent reversal of the yield curve translates into a turning point for the markets. equity, ”he said.
Counting a couple more, the following shows the commodities with the most overbought since March 2008 (see the 14-day relative strength index). For these assets to continue to outperform, the “dollar needs to weaken further and the momentum of global growth needs to surprise on the upside,” he said.
But he believes a stronger dollar could be the big surprise for investors this year. The following graph shows an analogue from the end of 2017 to 2018 and shows that “the train will officially leave the station in March”.
Finally, he is concerned about this graph showing the company’s most confident CEOs in the last 17 years. As inside, they can’t be much more optimistic.
Two things he considers likely for many investors not to do so: a stronger dollar at the end of the second quarter and a surprisingly strong global growth momentum in the second half of 2021. “The real blind spot for me is the impact that this could have have on the reflation trade, “he said.
So diversifying is Bittel’s advice, through a multi-set product that offers some stocks and bonds, which will benefit in times of surprise growth, but will also be protected from the bad things that happen.
The markets
ES00 stock futures,
YM00,
NQ00,
they fall after Monday’s bullish session. SXXP European Shares,
have risen, while Asian markets ended nearly low, following the bubble warning of Guo Shuqing, head of China’s Banking and Insurance Regulatory Commission. CL00 oil prices,
are lower, the DXY dollar,
is higher and Bitcoin BTCUSD,
prices rise.
The buzz
Shares of the Target TGT retailer,
they increase after better-than-expected sales. In this same sector, the shares of Kohl’s KSS,
they are increasing after their results. Hewlett Packard Enterprises HPE Information Technology Group,
will report after closing.
Zoom ZM Actions,
they increase, after the video communications group reported adjusted gains nearly ten times higher due to demand for its services related to the COVID-19 pandemic.
All Apple AAPL in the US,
the stores are open for business for the first time in almost a year.
A senior World Health Organization official warned of declaring victory over the pandemic later this year. That’s how global coronavirus cases first rose in seven weeks last week.
Random readings
Singer Taylor Swift is unhappy with Netflix’s NFLX,
“Ginny and Georgia.”
Two fruits, three vegetables a day = a longer life.
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