This commentary was recently written by money managers, market research firms and market newsletter writers and is published by Barron’s.
Powell the Volckerizer?
Intraday Strategy Edge
22nd of July: In a recent note, we pointed out that bear market rallies end suddenly and without a catalyst. And the higher stocks move, the worse the risk/reward trade-off becomes. However, given the depth of the sell-off year to date from peak to trough of -24.5%, we see further upside for this rally, which is consistent with previous historical reflexes, particularly in growth stocks.
But key to the durability of the rise will be how asset prices react to the FOMC next Wednesday. And only [Federal Reserve Chair] Jay Powell knows (and we suspect even he doesn’t know yet) which Fed chair will dominate the mic – a Volckerizer, an early pivoted Powell, or, unlikely but given the shadow of the global slowdown, the echoes of 1974 has, it cannot be ruled out, a blundering burns.
Julian Emanuel, Michael Chu, and Barak Hurvitz
P/Es below 10-year average
22nd of July: As the stock market declines, the forward P/E of the
is 16.3, below the five-year average of 18.6 and the ten-year average of 17.0. As mentioned, consensus estimates for earnings growth look bullish, but several quality growth stocks, particularly in the technology and consumer discretionary sectors, are down 40% or more.
Small banks, big problem
CSC Strategy Brief
Cove Street Capital
21 July: About 15% of the US economy is tied in some way to housing. Interest rates have risen and housing affordability has taken another hit. It just won’t be good for GDP. The top 25 banks have invested around 70% of their equity in commercial real estate. They have diversified business models, fee income and net benefit from reasonable rate hikes.
The next largest 500 banks hold around 245% of their equity in commercial real estate. Go to an office building near you and tell me what you see. Now tell me what a commercial real estate loan of up to 300 basis points looks like on this refinance calculation. That’s the answer to why we think smaller banks can’t be bought en masse here at 1.5x book value.
Dimensioning of the CHIPS law
UBS house view
21 July: The US Senate voted 64 to 34 to advance the CHIPS bill. This amended bill aims to increase domestic semiconductor production in the United States. This important move will open a vote for the Senate early next week to pass the CHIPS bill. If passed, it goes to the House of Representatives and then to the President for approval. The bill provides about $52 billion in subsidies and tax credits to bolster US manufacturing.
has lobbied heavily for passage of the law following plans for a new $20 billion factory in Ohio.
Taiwan semiconductor manufacturing
who are both building new facilities, have also lobbied for Congress to pass the CHIPS Act.
Amid rising demand and ongoing geopolitical tensions between China and Taiwan, the world leader in semiconductor production, the increased emphasis on domestic semiconductor production will continue. The US CHIPS Act follows a global trend to support domestic chip production. The European Commission passed the European Chips Act in May, providing billions of dollars to support local chip production. Chip maker STMicroelectronics and
have announced plans to build a plant in France, and Intel plans to invest $88 billion across Europe. Increased investment in chip manufacturing facilities is part of the broader trend towards greater focus on national security, supply chain resilience and economic independence. We advise investors to position their portfolios for the security era, including cyber security and energy security.
Mark Haefele and team
Slowdown, not recession
US Economic and Interest Rate Outlook
July 19: In the depths of the Covid downturn and recovery, we have endeavored to stop using the word ‘unprecedented’. While it was true that the economy had never seen such a tremendous contraction and recovery, the word did not help anyone understand how to deal with the crisis. Two years later, when we look at the growth outlook, we are again in unexplored territory: fears of a recession continue to mount, but the signs of a classic recession are not yet apparent.
Our main source of confidence for growth is the strong situation on the labor market. As long as people work, economic activity will continue and the risk of recession will be mitigated. Inflation is a growing constraint on expansion. Our base case remains a slowdown in growth, but not a full-blown recession.
Carl R. Tannenbaum, Ryan James Boyle, Vaibhav Tandon
EM will shine when the dollar falls
The Leuthold Group
July 19: After a promising start to the year, international equities are now lagging behind the S&P 500. Despite a strong US dollar, the MSCI ACWI ex-USA and MSCI EM ex-China indices hovered essentially in line with the S&P 500 mid-year. Through June , the developed markets index was ahead of the S&P 500 almost two-thirds of the time S&P 500, while non-China emerging markets outperformed the S&P 500 more than 90% of the time. Of late, global recession fears have intensified and the US dollar has risen sharply, with both international indices now trailing domestic stocks slightly. Nonetheless, we maintain our bias towards global equities – particularly non-China emerging markets – mainly because we expect the US dollar to plummet soon!
James W Paulsen
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