Sep 4, 2019

Some top fund managers and analysts remain bullish

Illustration: Aïda Amer/Axios

Doom and gloom abounds in the market, thanks to deteriorating economic data and growing global uncertainty, but many top fund managers and analysts remain bullish — and it's not just a case of rose-colored glasses.

The big picture: All the talk about recession related to market indicators like the inverted yield curve is becoming a "hysteria," says Sonal Desai, Franklin Templeton's CIO of fixed income.

  • That hysteria is causing investors to ignore clear signs of strength for the U.S. economy, such as the continued robust pace of jobs growth even with unemployment at a 50-year low, she argues.
  • Plus, there's the fact that wages and salaries grew 5.1% in the first half of the year with the household savings rate at a healthy 8.1% as of June, she adds.
  • Furthermore, the Fed also has ignored the data and started easing monetary policy, which is bolstering bond prices (and pushing down yields) while also cushioning the economy.

"Certainly, ongoing trade tensions are weighing on the parts of the manufacturing sector exposed to international trade and have contributed to market volatility," Desai tells Axios. "However, I do not see consumers panicking when we have record [high] levels of employment despite market volatility."

What's happening: Jim Paulsen, chief investment strategist of the Leuthold Group, agrees. He recently argued on CNBC that the market is caught in a "fear bubble" pushing investors into bonds with historically low yields instead of stocks that are near record highs.

  • "If we are headed for an imminent recession, it will likely be the most widely anticipated and best predicted recession ever," Paulsen tells Axios in an email.

He points to the substantial amount of government spending buffeting the economy — "one of the largest non-recessionary fiscal accommodations in the post-war era" — and the accelerating annual growth of real U.S. money supply as factors that should give the stock market a boost for at least the rest of the year.

Watch this space: Investor fear has tipped Bank of America Merrill Lynch's flagship positioning model to a contrarian "buy signal" for risk assets for the first time since Jan. 3, analysts said in a recent note to clients.

  • This implies the S&P 500 and MSCI's All-Country World Index are set to again push toward their all-time highs and drive Treasury yields and commodity prices higher.

Yes, but: Weak manufacturing data Tuesday (see below) capped a spate of declining economic indicators over the past several weeks, including falling U.S. consumer sentiment and imploding manufacturing surveys around the globe.

  • “The deterioration referred to has largely been in sentiment and survey-based indicators," Desai says. "I would need to see some more softening in hard data to start worrying about an imminent recession."

Go deeper

The bears are in control now

Illustration: Aïda Amer/Axios

For much of the year, equity bulls bought stocks on even the faintest hint of good news about companies or the economy, pushing U.S. indexes to new all-time highs despite a slowing economy and negligible earnings growth.

Why it matters: But with the S&P 500 approaching 20% gains for the year and no real signs of growth to be found, a spirit of pessimism and increased caution looks to be gripping the market.

Go deeperArrowOct 2, 2019

An inflection point for the market

The market's ebullient mood has soured as September comes to a close and stock traders seem to have lost the risk appetite that had been pushing equities back toward all-time highs.

Why it matters: This week will likely provide an inflection point that will drive the market through the Q3 earnings season, which picks up in mid-October, and could last through the Fed's meeting on Oct. 30.

Go deeperArrowSep 30, 2019

The great bond selloff signals concerns about inflation

Data: U.S. Treasury; Chart: Axios Visuals

Treasury yields jolted higher last week as investors bailed out of safe-haven U.S. government debt, pushing yields up by the most in one week since June 2013. The selloff that began Sept. 4 sent yields on the benchmark 10-year Treasury note from 1.45% to 1.90% in less than 2 weeks.

Why it matters: While some have credited the spike in Treasury yields to renewed faith in the U.S. economy, the market is likely more worried about a return of inflation — a far greater ill for fixed income investors as it corrodes the value of already issued bonds.

Go deeperArrowSep 16, 2019