Sean Markowitcz (Schroders) | Since the 1970s, there have been approximately 11 rising yield cycles. Yet, contrary to popular belief, these periods were overwhelmingly positive for the stock market. For example, US equities delivered a positive total return in nine of these episodes, with an annualised average performance of 13.4%.
US stock market
CaixaBank Research (Adriá Morron and Alex Ruiz) | Since the lowest point recorded last March, the main index for the US equity has risen almost non-stop by around 70%. In recent weeks, this rally has also been accompanied by dynamics in certain US equity segments that are reminiscent of events followed by major stock market adjustments in the past. Is the US equity market decoupling from economic fundamentals?
Last week there were sharp falls in the stock markets (-4%/-5% in Europe, -6%/-7% in the US), with the biggest drops since March. In a context of a significant disconnection between prices and fundamentals after the sharp rises from the March lows, which were discounting an unlikely “V” recovery, these downward moves seem logical. Also the upward excesses, which until last week were the protagonists. Our correspondent in Washington, Pablo Pardo, analyses this stock market and economic chaos.
Pablo Pardo (Washington) | Ken Fisher is a curious multi-millionaire, who talks in plain language and loves the media. At 69, he is retired from the day-to-day management of his fund, Fisher Investments, which holds more than 100 billion dollars in management, and seems to be enjoying himself as a columnist in, among other media, the dailies Financial Times and USA Today and the weekly Forbes, where he sets out his ideas about markets in a plain language easily understood by everyone. And he does not hesitate to runs against the current when, for example, he says “I am not a fan of philanthropy”, although, it also has to be pointed out that he has donated millions to protect woods in the US, especially the redwoods, a species of sequoia which reach more than 100m high and are one of the largest trees in the world.
One factor that could alter the judgement on current stock market prices are long-term interest rates, indicators of the alternative no-risk returns to the stockmarket, which are not fixed directly by the central banks but by the market itself.
It’s clear that the prices of physical and financial assets are growing a lot, while debts are increasing strongly. As experience shows, it’s difficult for everything to get back to normal systematically.
Nobody really knows why volatility has disappeared. In theory, there are more than enough reasons for the market to be nervous, and for investors to take advantage of this to obtain higher returns.
Yesterday, Apple presented the iPhone X, a new version of the phone which incorporates the biggest change in design since its launch in 2007. The new iPhone X will sell for 999$.
The US stock market represents 54% of the MSCI world markets’ index and 60% of the MSCI for developed countries, according to The Economist. It’s another indicator to add to those we have mentioned before which point to the US market being overvalued.