It’s a brave person who is short the market. Probabilities suggest we are headed higher in the near-term. For example, previous episodes of Fed pausing suggests stocks typically gain. My sentiment today is best described as ‘cautious… but invested’. To that end, one should always be invested to some extent. And whilst it’s always unwise to be completely remiss of the risks — it would be an even greater mistake not to have some exposure to higher quality risk assets and fixed income (at current yields)
"Market History"
September Didn’t Disappoint
Coming into September – I reminded readers it has the worst record of any calendar month. The Trader’s Almanac tells us the S&P 500 has lost an average of 1% each September over the past 10 years. And over the prior 25 years – the average monthly returns are -0.67%. Dismal. This year, the S&P 500 gave back 4.9% for the month. But it wasn’t just September – stocks hit the pause button after June. For the quarter, the Index surrendered 3.64%.The Nasdaq fared far worse – losing 4.12%. None of this should come as a surprise…
History Lessons
History offers us valuable lessons. During the week, I read an interesting Bloomberg article citing research from financial historian Paul Schmelzing. He explained at a Jefferies (Hong Kong) forum that it’s effectively impossible for data from recent decades to offer insight into whether there’ll be a lasting impact on borrowing costs from the pandemic. This is interesting as the popular narrative is rates will remain high for a very long time…. but will they?
Beware the “Bear Steepening” of the Curve
My last post talked about how the market is now taking its cues from bond yields (less so the Fed) Don’t get me wrong… what the Fed does (or says) matters. We will hear more from Chair Jay Powell at the end of the week. Expect hawkish tones. To recap on what I shared earlier this week – globally long-term bond yields trade at their highest levels in 15 years. However, what’s interesting is the shorter-end (e.g. 2-year and below) is not keeping pace. This has net the effect of “steepening” the all-important 10/2 yield curve. Question is – will that be a problem? History may offer some clues.
For a full list of posts from 2017…