US MARKET THOUGHTS February 11, 2022

The biggest story so far this year (and this week) in markets is that central banks are going to be fighting realized inflation more aggressively than they have in decades. After Thursday's inflation print, which showed the fastest pace of price increases in 40 years, markets are expecting policy interest rates to be above 1% by the summer. Equity volatility is elevated as investors try to incorporate the new regime into share prices.

Investors have questions, the biggest of which is probably: will central banks have to cause a recession in order to tame inflation?

While we know our specialists don't have perfect foresight, we think they have a good idea of how portfolios should be positioned based on their read of the incoming economic, inflation and earnings data.

US MARKET THOUGHTS January 8, 2022

The minutes from the Federal Open Market Committee's meeting in December suggested that less supportive monetary policy is right around the corner. Rate hikes seem likely this year (maybe even as soon as the March meeting, when asset purchases are set to end), and the Fed hinted that they may even let their balance sheet shrink soon after.

But, it's not all bad news. It has been 6 weeks since the Omicron variant started to take off in South Africa, and the evidence suggests that the wave will be manageable from an economic and market perspective. Vaccines and prior immunity seem to be reducing the severity of the disease and provide a path toward a more normal social and economic environment. Fingers crossed...

US MARKET THOUGHTS December 19, 2021

This week, the Federal Reserve officially made their pivot from a position of maximum support for the economy to one of increased flexibility to fight inflation. There are three takeaways that illustrate this move:

1. The Fed is expecting higher inflation and lower unemployment.
2. They are accelerating the pace of tapering.
3. They are forecasting more rate hikes, and sooner.

All things considered, markets took the news in stride. Broad equity markets are down a little bit after some ups and downs. The digital economy and speculative names are taking the news hardest while more cyclically sensitive stocks (think banks and energy) are doing well. Bond yields have drifted lower. This suggests that the Fed had done a decent job prepping investors for what was coming.

A lot of investors will focus on when the Fed will start hiking rates. The specialists don't think the start of a rate hiking cycle is the time to worry. The Fed will raise rates because the labor market is strong and price pressures are building. Said differently, the economy will be healthy. To us, the real time to worry is when they stop raising rates because they start to see that the markets and economy can't handle the rate hikes.

US MARKET THOUGHTS December 3, 2021

It's been a volatile week in markets. Two risks drove the market moves : the ongoing pandemic and monetary policy.

On the virus, there's still a lot we don't know about the new omicron variant, but markets didn't wait to find out the answers. As you might expect, assets that are sensitive to travel were under pressure for most of the week, but "stay-at-home" stocks didn't do well either. That means there was probably more to the story than just the new variant.

Cue Fed Chair Jerome Powell. At his Senate testimony on Tuesday, he signaled that the Fed may opt to accelerate its announced pace of tapering to end its asset purchase plan by spring rather than summer.
A less supportive Fed has very important implications for investors. When monetary policy gets less supportive, the most speculative stocks can be the first ones to crack.

US MARKET THOUGHTS November 19, 2021

All things considered, it was a quiet week in markets. Stocks drifted higher, driven by big tech and the #metaverse. Meanwhile, the most economically sensitive sectors (materials, financials, and energy) were the worst performers. Nonetheless, the S&P 500 made its 66th new all-time high of the year on Thursday. It only needs 12 more to break the record of 77 set in 1995.

In the aftermath of last week's inflation reading, bond yields were relatively tame. Markets continue to think that the Fed will embark on a rate hiking cycle by the middle of next year, and higher short-term interest rates in the United States seem to be drawing in capital. The U.S. dollar is the strongest it has been relative to a basket of other currencies since last June.

As we head into the holiday season, the specialists want to keep an eye on few developments that matter for markets. For instance, is supply chain chaos abating? Should we be worried about energy prices into winter? What should you make of rising COVID-19 cases in Europe? out.
It's time to invest in Miami!

US MARKET THOUGHTS November 13, 2021

This week we had markets reacting to an US infrastructure investment bill that passed through Congress, world leaders re-affirmed their commitment to climate change mitigation at COP26, and stocks linked to the Metaverse (or an extension of the physical world into 3-D virtual environments) surged. In China, policymakers paved the way toward an historic third term for President Xi Jinping, while Alibaba's Singles Day generated record sales.
But all of that was drowned out by the inflation data that was released on Wednesday.

Finally, Europeans can travel to the United States again with the end of the “Travel ban”. Now is the time to invest in New York!

US MARKET THOUGHTS November 5, 2021

It was a new record kind of week. Heading into Friday, the S&P 500 had notched six consecutive new highs (already the best year since 1995). The Fed was undoubtedly the main event.

After months of speculation, the Fed made good on its move to start tapering its bond buying program at its latest policy meeting. For all the hubbub earlier in the year, the price reaction was far from a taper tantrum—the U.S. yield curve is only modestly steeper than it was a week ago. Some might worry, though, that the start of tapering means rate hikes are just around the corner. After all, the market is currently pricing in two hikes by the end of 2022 and three more in 2023. But the specialists think that the first hike will come around the end of next year, and that there will be fewer hikes than the market's expectation for five by the end of 2023.

Much of that view has to do with the path of the employment recovery and future inflation. For instance, today's jobs report showed the U.S. economy added another 531,000 jobs in October and the unemployment rate fell to 4.6% (both well ahead of expectations).

US MARKET THOUGHTS October 29, 2021

Leaders across politics, business, and science are heading to Glasgow for COP26, the fifth climate mega-conference hosted by the United Nations. Participating countries are required to resubmit their goals for reducing carbon emissions and adapting to the impacts of climate change, all in the hopes of getting the world closer to achieving "net zero".

To get there, massive investment in sustainability initiatives and technologies will be needed. That includes things like renewable energy capacity, which is estimated to need to quadruple by 2030 to keep goals on track.

US MARKET THOUGHTS October 21, 2021

Just a few weeks ago the specialists outlined the bear case that investors were flirting with. How times have changed.
Heading into the weekend, the S&P 500 returned to all-time highs, and risk markets everywhere are climbing. U.S. banks, home improvement warehouses, next-generation automakers, and digital entertainment companies are making all-time highs. So is Bitcoin. Even Chinese tech stocks, perhaps the worst assets in the world to own this year, are up 20% from their lows earlier this month. Sovereign bonds are selling off, and implied volatility is at pandemic era lows.

US MARKET THOUGHTS October 16, 2021

Stocks just had their best day since March. Thursday's +1.7% S&P 500 rally delivered gains of +1%. The perk-up in performance is mostly thanks to strong Q3 earnings results from many of the season's early reporters, and the positive momentum continued with further gains for the S&P 500 on Friday morning.
This week, the specialists unpack our expectations for the Q3 earnings season by honing in on three key dynamics they're focused on as reporting ramps up: supply shortages, strong demand, and how companies are navigating the resultant inflationary pressures.
After all, this week's inflation data suggests the tradeoff between "transitory" inflation pressures and more persistent ones is happening faster than expected. Will that be enough to insulate corporate profit margins?

US MARKET THOUGHTS October 11, 2021

After a crummy close to the third quarter, stocks seem to be finding a foothold. The S&P 500 headed into Friday morning up +1% on the week, with every sector (and more than two-thirds of companies in the index) in the green. Meanwhile, Treasury yields across the curve have edged higher (overnight, the 10-year touched 1.60% for the first time since June).
Just last week, specialists offered a litany of reasons why broad market sentiment was skewing more bearish than bullish. What changed?

For one, Congress put fears of a debt ceiling breach on ice, as the Senate passed a bill to raise the government's borrowing capacity. Economic data got out of the dumps, with releases so far in October exceeding expectations. And, new earnings results reminded us that not every company is hamstringed by supply chain struggles.

But as investors position for more upside, they should acknowledge there may be near-term muck to trudge through – like the recent and torrid rise in energy prices, for example.

US MARKET THOUGHTS October 1, 2021

Global stocks just had their worst month in a year, and a clear bear case has emerged. Central banks are removing support just as supply chain issues and inflation are starting to pinch corporate profits, and bond yields are spiking at exactly the wrong time. Analysts have a sinking feeling that third quarter earnings season could be disappointing, and those supply chain issues and shortages, by the way, show little signs of improving. In the background, economic data releases have been disappointing expectations, and consensus estimates for third quarter GDP growth have fallen by two full percentage points from peak.

Our global market strategists still think stocks could be higher a year from now. Demand is still strong, interest rates are still far from starting to pinch economic activity, and the delta-driven COVID-19 wave seems to be improving globally. Stocks just might have to muddle through for a little while longer. - Source JP Morgan

Le nouveau paradigme en Investissement

The COVID-19 pandemic accelerated the shift to a replacement investment paradigm, characterized by near-zero interest rates, coordinated monetary and monetary policy, and heightened internal and external conflict.

While the pandemic was an accelerant, we believe this shift was inevitable which the key elements of this new environment will remain long after the virus passes.