Outlook for August 2019

Summer doldrums are here, but no loss of excitement in the markets. The Fed has followed through in its most telegraphed move ever to cut interest rate. A cut of 25bps was almost a certainty as the Jul 31st decision date came close.

However, it seems like Chairman Powell may have shown his hand a bit more than expected. Trump has been calling for further cuts and announced more tariffs on Chinese goods. This increased the bond market’s pricing odds of another cut in Aug/Sep. While the stock market is cheering on, history has shown that rate cuts are seldom bullish for the economy and markets. It remains to be seen how things play out in the coming weeks/months.

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Outlook for July 2019

Summer doldrums are here, but no loss of excitement in the markets. Every week we hear the same beat of the drums — trade negotiations, political circus, central bank policy commentary.

The treasury rates continue to weaken and bond market continues to price in rate cuts from the Fed and other central bankers. The amount of negative yielding debt is at a record and more securities continue to trade in negative territory. Whether this will result in an actual recession is anyone’s guess at this time.

The stock markets have done extremely well so far in 2019. The drop in markets in Q4 2018 and the low starting point for the YTD performance numbers help in showing spectacular returns.

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Outlook for June 2019

After a record climb between December and April, the market is cooling off again. May ended up being a bad month for a lot of sectors as the tariffs/trade war rhetoric picked up steam.

Not only is the US now targeting a trade war against China, but also Mexico — thats 2 out of 3 largest trading partners. Of course, investors are rushing to safe havens now, so treasuries & gold are doing well. Following graphic provides a quick overview of market sentiment at the end of May 2019.

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Outlook for May 2019

It’s earnings season amid record low volatility — which is turning out to be interesting to watch.

Companies are clearing the low set thresholds easily with comparable or declining revenues and high earnings thanks to the record buybacks. For instance, Apple’s latest quarterly result show very similar numbers as they were four years ago, but trading at high price thanks to the reduction in share count.

On the central banks front, non-US central bankers are caving to the reality. From the Canadian CB to a handful of European CBs, all have changed their tones and dropped the rate hike bias completely — and already discussing rate cuts. This week’s communication from the Fed also confirms that rate hikes for this cycle are over.

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Outlook for April 2019

The stock market is on a tear lately with plenty of companies hitting all time highs, as central bank liquidity and FOMO from investors continue driving the increased stock demand. Valuations remain silly and have gotten even sillier over the past couple of months.

However, on central bank front, the Fed seems to be caving to the market pressure and signaling that the rate hike is done for this cycle. The bond yields continue to fall as the stock and bond market outlook continues to diverge.

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