Oct 2, 2019

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.

What's happening: Stocks have been driven higher by 3 main catalysts: hope for a resolution of the U.S.-China trade war, expectations for easier central bank policy and a strong American consumer. It's still possible that all 3 come through to boost asset prices this year, but downside risks have come to overpower optimism in recent weeks.

  • The trade war is having a clear impact on not just manufacturing, but business and consumer confidence as well as capital expenditures and investment.
  • Data shows countries around the globe are seeing slowing GDP growth, with some going into reverse, including in Germany and the U.K., 2 of the world's 5 largest economies.
  • Extremely loose global central bank policy is failing to offset the negative impacts of slowing trade, growing uncertainty and weakening population demographics.

What they're saying:

  • "The disappointing data is only fanning long-standing fears of slowing global growth," Alec Young, managing director of global markets research at FTSE Russell, wrote in a note to clients.
  • "And with U.S.-China trade expected to produce little in the way of near-term breakthroughs, investors continue to favor countercyclical, defensive stocks with high dividend yields as weak data pushes interest rates ever lower," Young said.
  • “Fed rate cuts are not likely to fuel equities higher as they did in the 1990s,” UBS equity strategist Francois Trahan said in a note.
  • “The Fed-easing rallies of the 1990s were made possible by a strong inverse correlation between interest rates and [price-to-earnings ratios]. This relationship no longer exists today,” Trahan added.

The big picture: While most economists caution they are not expecting a global or U.S. recession in the next year, there is little on the horizon in the way of good news.

  • Third quarter corporate earnings are expected to be negative for the second quarter in a row and likely will slump again in the fourth, analysts say.

The bottom line: U.S. equity investors are now seeing a brand new stock market. In this market, traders sell companies with bad balance sheets and no profitability plans, and the market goes down when leading economic indicators point toward recession.

Go deeper

Coronavirus dashboard

Illustration: Aïda Amer/Axios

  1. Global: Total confirmed cases as of 3 a.m. ET: 5,410,228 — Total deaths: 345,105 — Total recoveries — 2,169,005Map.
  2. U.S.: Total confirmed cases as of 3 a.m. ET: 1,643,499 — Total deaths: 97,722 — Total recoveries: 366,736 — Total tested: 14,163,915Map.
  3. World: White House announces travel restrictions on Brazil, coronavirus hotspot in Southern Hemisphere Over 100 coronavirus cases in Germany tied to single day of church services — Boris Johnson backs top aide amid reports that he broke U.K. lockdown while exhibiting symptoms.
  4. Public health: Officials are urging Americans to wear masks headed into Memorial Day weekend Report finds "little evidence" coronavirus under control in most statesHurricanes, wildfires, the flu could strain COVID-19 response
  5. Economy: White House economic adviser Kevin Hassett says it's possible the unemployment rate could still be in double digits by November's election — Public employees brace for layoffs.
  6. Federal government: Trump attacks a Columbia University study that suggests earlier lockdown could have saved 36,000 American lives.
  7. What should I do? Hydroxychloroquine questions answeredTraveling, asthma, dishes, disinfectants and being contagiousMasks, lending books and self-isolatingExercise, laundry, what counts as soap — Pets, moving and personal healthAnswers about the virus from Axios expertsWhat to know about social distancingHow to minimize your risk.
  8. Other resources: CDC on how to avoid the virus, what to do if you get it, the right mask to wear.

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Updated 2 hours ago - Politics & Policy

U.S. coronavirus updates

Data: The Center for Systems Science and Engineering at Johns Hopkins; Map: Andrew Witherspoon/Axios. This graphic includes "probable deaths" that New York City began reporting on April 14.

The CDC is warning of potentially "aggressive rodent behavior" amid a rise in reports of rat activity in several areas, as the animals search further for food while Americans stay home more during the coronavirus pandemic.

By the numbers: More than 97,700 people have died from COVID-19 and over 1.6 million have tested positive in the U.S. Over 366,700 Americans have recovered and more than 14.1 million tests have been conducted.

World coronavirus updates

Data: The Center for Systems Science and Engineering at Johns Hopkins; Map: Axios Visuals

Japan's economy minister outlined plans on Monday to end the nationwide state of emergency as the number of new novel coronavirus cases continues to decline to fewer than 50 a day, per Bloomberg. Japan has reported 16,550 cases and 820 deaths.

By the numbers: Over 5.4 million people have tested positive for the virus as of Monday, and more than 2.1 million have recovered. The U.S. has reported the most cases in the world (over 1.6 million from 13.7 million tests). The U.K. is reporting over 36,800 deaths from the coronavirus — the most fatalities outside the U.S.