After a lackluster September, US equities are showing buoyancy in October. The NASDAQ 100 Index is up over 2.7% while the S&P 500 Index is up over 3.4% month-to-date. While markets were initially disappointed by delays in the much-awaited US fiscal stimulus, it appears that they are now beginning to price in the strong impact it can have whenever it comes – before or after the US presidential election. Which assets stand to benefit and how could investors position themselves?
Patrik Lang, Head Equities (Julius Baer) | We have downgraded eurozone equities to Underweight given slower earnings recovery expectations, increasing political risk and unfavourable sector exposure. In our view, relative valuations do not fully reflect these negatives. On the other hand, we have upgraded US equities, which should benefit from a relatively fast post-Covid-19 recovery.
As Peter Kinsella, UBP’s global FX strategist highlights, the US dollar bull market has likely run its course as we enter 2020. Indeed, since 1995, long-cycle inflections in the US dollar exchange range have coincided with long-cycle under/outperformance of US equities relative to non- US equities.
Q3 earnings season has been strong virtually all over the place, well above expectations, and consensus forecasts move up. According to analysts at Julius Baer, “equity weakness continues to be driven by performance protection and money flow rather than fundamental factors.”
Global equities have held up fairly well in light of the generally negative news flow, entirely driven by the United States, where stocks are up 9.6% year to date, while the euro area, Japan and emerging markets have underperformed. In this context, the Research team from AXA IM points that earnings momentum remains “robust” with the second quarter earnings season posting “positive growth” and “surprising” on the upside across most major regions.
The collapse in the “greed index”, the exchange traded note XIV that was an inverse of the VIX, was behind the speed and magnitude of the drawdown in equities over last weeks, but was simply amplifying an existing fragility that has grown out of the post GFC obsession with low volatility. This is just “market mechanics”, as explained by Mark Tinker Chief Economist at AXA IM Framlington Equities Asia in one of his last notes.
ATL Capital |For most people, the summer is a time for relaxing and taking a well-earned break from work. But it can also bring instability and suprises in the stock markets. While August has been a negative month for investments for the last eight years, it’s September which is traditionally the worst summertime month.
MADRID | The Corner | The dollar is set to rise, mostly as monetary policies of the Fed, ECB and BoJ are set to diverge dramatically, the greenback trend being intact and the cheap valuations, analysts at Barclays commented.