Fed No Longer the “Only Game in Town” for Stocks

US equities are beginning to behave more normally. The average pairwise correlation across S&P 500 stocks has plunged (top-left chart), which tells us that stocks are starting to move independently from one another and are no longer driven to the same extent by...

Plenty of Cover for Fed to Maintain the “Big Ease”

In our Market Ledger, one of the “debits” for the market is chronic insolvency. We have not really begun to see the full impact on jobs and businesses due to improved unemployment benefits, stimulus cheques and business lending schemes, but that will change as...

Revisiting Lessons from China 2015 Market Rescue

The collision of two powerful and opposing forces has created an uncertain outlook for equity markets. Aggressive stimulus from the Fed – which Powell says has “no limits” – has caused the monetary base to surge relative to the equity market cap (top-left...

Autos will lag other rate-sensitive sectors

The auto and housing sectors are two parts of the economy that are highly sensitive to interest rate changes. In light of the Fed’s dovish pivot at the start of the year, culminating in 3x25bps of interest rate cuts, we would expect activity in both sectors to surge....

Yields suggest Monetary policy is close to its limits

This post was taken from our weekly report, dated October 15, 2019. In the last month yields have since then done a round trip, falling and then rising again, but crucially term premium (TP) has not fallen. It was TP’s relentless fall through 2019 that meant the...

G3 Central Banks set Tone

The divergence in monetary policy across developed markets since the beginning of 2018 is starting to breakdown as Fed and ECB easing makes it increasingly difficult for the hawkish hold-outs to tighten. Above-target inflation in 2018/early 2019 provided cover for the...

Fed Easing sees Defensive Stocks come out on Top

Over the last five Fed easing cycles consumer staples, healthcare and energy provide the highest average total return above the index one year after the Fed’s first cut. This is not too surprising given that the Fed started cutting as recessions loomed in 2007 and...