August 12, 2024
Good morning,
What a difference a week makes – sort of. There is a sense of calm in markets this morning, which is a dramatic reversal from “Melt Down” Monday last week. It helps a bit that Japanese markets are closed for a holiday today. Still, last Wednesday, Bank of Japan Deputy Governor Shinichi Uchida said that the central bank will not raise rates when financial markets are unstable, which has provided some relief to a strengthening Yen. The unwind of the “carry-trade” is probably incomplete, but the pace of it seems to have slowed enough to allow global markets to digest the rest of it in an orderly fashion (hopefully).
The other alleged culprit to last week’s melt down was a spike in U.S. recession fears following the July employment report. One week later, equity market indices are virtually unchanged on the week: SPX -.02%, NDX -.17%, RTY -1.32%. Remember, they were all down over -6% on Monday morning. That kind of strength does suggest that the correction beginning in July is over.
Early last week, the probability of a hard landing for the U.S. economy spiked to 35% from 10%, in the interest rate futures market. That probability has backed off a little and is 25% this morning. The S&P’s current forward P/E ratio of around 21 is not a recessionary multiple and explains why the equity market gets jittery (volatile) when recession fears climb. The volatility index (VIX) is still over 20, so I don’t think we’ve seen the end of 1-2% intra-day moves. The direction of those moves will likely be data-dependent.
That leads us right into this week’s heavy list of economic data releases (18) and earnings reports (30). The big ones are PPI Tuesday, CPI Wednesday, Jobless Claims & Retail Sales Thursday. Key earnings reports from Home Depot and Walmart will also be widely anticipated.
In sum, the influence of the carry-trade and equity market correction on markets has likely passed but the market’s sensitivity to signs of economic growth (positive and negative) remains very high. My own $.02 – the market’s strength in the grips of a crisis last week was strong enough to suggest higher equity prices in the days ahead, barring some rogue data.
More about the longer-term outlook for stocks and bonds on Thursday (spoiler-alert: it’s not very sanguine).
Be well,
Mike
Disclosures
Investment advisory services offered through Robertson Stephens Wealth Management, LLC (“Robertson Stephens”), an SEC-registered investment advisor. Registration does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. This material is for general informational purposes only and should not be construed as investment, tax or legal advice. It does not constitute a recommendation or offer to buy or sell any security, has not been tailored to the needs of any specific investor, and should not provide the basis for any investment decision. Please consult with your Advisor prior to making any Investment decisions. The information contained herein was compiled from sources believed to be reliable, but Robertson Stephens does not guarantee its accuracy or completeness. Information, views and opinions are current as of the date of this presentation, are based on the information available at the time, and are subject to change based on market and other conditions. Robertson Stephens assumes no duty to update this information. Unless otherwise noted, any individual opinions presented are those of the author and not necessarily those of Robertson Stephens. Performance may be compared to several indices. Indices are unmanaged and reflect the reinvestment of all income or dividends but do not reflect the deduction of any fees or expenses which would reduce returns. A complete list of Robertson Stephens Investment Office recommendations over the previous 12 months is available upon request. Past performance does not guarantee future results. Forward-looking performance targets or estimates are not guaranteed and may not be achieved. Investing entails risks, including possible loss of principal. Alternative investments are only available to qualified investors and are not suitable for all investors. Alternative investments include risks such as illiquidity, long time horizons, reduced transparency, and significant loss of principal. This material is an investment advisory publication intended for investment advisory clients and prospective clients only. Robertson Stephens only transacts business in states in which it is properly registered or is excluded or exempted from registration. A copy of Robertson Stephens’ current written disclosure brochure filed with the SEC which discusses, among other things, Robertson Stephens’ business practices, services and fees, is available through the SEC’s website at: www.adviserinfo.sec.gov. © 2024 Robertson Stephens Wealth Management, LLC. All rights reserved. Robertson Stephens is a registered trademark of Robertson Stephens Wealth Management, LLC in the United States and elsewhere.