The Q1 earnings numbers have kicked up a lot of dust across sectors and individual companies, which is good news for stock-pickers eager to prove their worth. For markets as a whole, though, I see little change in the underlying narrative relative to what I have been talking about recently. Equity investors remain focused on what policymakers are saying rather than what they’re doing, sticking with the idea that central banks, and perhaps even politicians at large, have their backs. Bond markets are nodding in agreement. Solid labour market data in the U.S., and a robust Q1 GDP print, have not dented market-implied expectations that the next move by the Fed will be a cut. And in the Eurozone, markets have priced out an adjustment in the deposit rate through 2021. Blackrock’s Rick Rieder summed it up neatly last week by referring to the asymmetric outlook for policy. I am paraphrasing, but the idea goes something like this: “If central banks raise rates, they will do so slowly and hesitantly. If they have to cut, due to tightening financial conditions and a slowing economy, they will do so fast and aggressively.” I would even wrap in fiscal policy here, though this admittedly tends to operate more slowly, and over a longer timeframe than monetary policy.Read More
Investors have found it difficult to resist the temptation to become armchair generals in response to the recent flurry of geopolitical volatility. I have some sympathy for that. Political experts told us that Mr. Trump would mark the beginning of a new U.S. isolationism, and even speculated about the emergence of a new Monroe doctrine. The president's "America First" discourse, the statement that NATO is obsolete, and the rapprochement to Russia were all pivots watched ominously by other world leaders, especially in continental Europe.
This story, however, increasingly feels like ancient history.Read More
I am short on time this weekend, which is probably a good thing given that I have really struggled to share the excitement over last week's events. We had the swoon of the S&P 500 and its first 1% daily decline in more than <insert number here> days on Tuesday. Overall the index had temerity to post a 1.4% decline on the week, the biggest fall since the first week of November. It was with a tinge of embarrassment that I watched the overreaction of my fellow equity investors on both sides. For the bulls, this was the buy-the-dip of a lifetime and for the bears it was the signal that the bull market had come to an end. In truth of course, it was evidence of neither, although I suspect that the bulls will be the ones sleeping with most unease.Read More
In this show I argue that paying less attention to Mr. Trump and the White House probably won't do you any harm. It might even do you good. I also respond to the idea that no credible alternatives are currently being offered to the surge in new populism and its policy suggestions. I offer three concrete proposals. Finally, I try to make an impossible transition to a brief discussion about financial markets. I will put up some charts in the next few days, but I am not sure that much has changed. The queue of bears at the abattoir is long as ever.Read More