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True Insights: ISM manufacturing – the ugliest macro indicator for stocks!
The ISM Manufacturing Index plummeted this month, creating a significant gap with realized GDP growth.
Equity investors are currently completely (willingly) overlooking the signal from the ISM Manufacturing Index.
Buckle up! Based on the latest ISM, the S&P 500 should be at 3,743 points. Yikes! Click here.
Mike Green: In a passive world, stocks no longer qualify as leading economic indicators
We were doing some work on the role of passive and came across this piece from Mike Green, probably one of the leading critics and most studied people on the distortions of passive investing.
Despite the Leading Economic Index falling below the typical recession threshold, coincident indicators and the National Bureau of Economic Research have not confirmed a recession.
This unique scenario in historical datasets makes current predictions uncertain.
The reliance on certain economic indicators like stock prices and credit spreads is increasingly dubious due to the growing impact of passive investment strategies, which may distort traditional leading indicators and complicate policy decisions. Click here.
MRB: Will the tortoise beat the hare?
The window for lowering rates will close once it is clear that DM inflation has levelled off above pre-pandemic and target levels.
Moreover, pockets of frothy market action reinforce that monetary conditions are not restrictive.
MRB recommend rotating into select non-U.S. and non-tech equities: these areas are generating solid returns with less downside risk than today’s high-flyers for when the next risk-off phase develops. Click here.
MI2 Partners: Eurozone – better than you think
The eurozone economy is showing signs of improvement, with better-than-expected data surprising markets.
Manufacturing and exports are showing promising signs but there are still challenges, particularly in the manufacturing sector where inventories remain high.
The domestic economy, on the other hand, seems to be adapting to higher interest rates. Click here.
Societe Generale: Asia equity strategy – the three stages of the bull market
Societe Generale’s central scenario assumes unchanged valuations and earnings growing in the low teens. It has a target of 710 for the MSCI Asia ex-Japan.
In this scenario, Korea and Taiwan lead the upturn amid a combination of Growth (semiconductor sector) and Value (Value-up Program).
India, at a more mature stage of the bull market, has more limited upside. Click here.
TS Lombard: The de-Japanization of the world (& Japan?)
The narrative of “Japanization” in the global economy, characterized by deflation, aging demographics, and excessive debt, has been reversed during the COVID-19 pandemic.
Instead, there is now a concept of “de-Japanization,” where the world economy is becoming structurally inflationary and even Japan itself may break free from its deflationary trap.
However, China remains an exception to the de-Japanization trend, as its economy faces similar challenges to Japan in the 1990s, such as a credit-fuelled property bubble. Click here.
J Capital Research: The end of the commodity boom; trying to master the debt problem – the meaning of “Document 35”
China’s new policy document, Document 35, aims to address the country’s local government debt.
China’s leaders are concerned about a financial crisis and have chosen to prioritize debt control over growth. As a result, infrastructure spending is expected to decrease by ¥2 trillion this year. The government is also implementing measures to lower lending rates and restrict borrowing for new projects.
If local governments are denied new funding, there may be a decline in demand for steel, iron ore, and other commodities. Click here.
Macro Risk Advisors: Rotation is the lifeblood of a bull market
Despite worries that “something has got to give”, the reality is that this is a bull market that has seen technical improvement over the past six months, not the other way around.
Our core concern last year was the narrowness of the tape, where the average stock was trendless while technical indicators such as the advance-decline line, were trending lower.
Those worries have disappeared as areas outside of Tech have picked up the relative performance baton. The rotation matrix shows that while Tech and Industrials continue to be persistent leadership, Financials, Energy, Materials and even Utilities are gaining strength. Comparison to the Tech Bubble falls short when looking at market internals. Click here, and here for the recording.
