It’s the last trading day of the second quarter, and what a run it’s been, despite recent quietness. In the second quarter, the S&P 500 SPX, +0.03 percent increased by 8%, bringing its five-quarter gain to an amazing 66 percent. Despite concerns about megacap tech stocks in the face of rising bond yields, the Nasdaq Composite COMP, +0.19% has risen 10%, extending its five-quarter winning streak to 89 percent. “At this point, I believe the drivers are quite well recognized. The global economic recovery, vaccine rollouts, and fiscal and monetary policy assistance are all part of the recovery story, according to Joseph Little, chief global strategist at HSBC Asset Management.
Little, on the other hand, does not anticipate the celebration lasting much longer. “I do believe there is an important transformation taking place in the macro economy and in markets,” he adds, adding that growth in the United States, China, and other industrial Asian countries appears to have peaked. Not only in the United States, where Federal Reserve officials are debating cutting bond purchases, but also in Asia, policymakers are getting “itchy feet on the brake pedal,” he said. “And I believe this will make things a little more difficult for markets,” Little said.
Profits are still good throughout the expansion phase of the economic cycle, but multiples start to come down, according to Little. He also mentioned the yield curve’s “quite sudden” flattening following the last Fed decision, which he believes is another sign that the reflation trade has run its course. The next earnings report season will be crucial right now because it will be the driving factor behind market movement. According to Little, expected asset returns have declined across nearly all asset types. “It’s a case of being practical, taking that message of lower expected returns, and knowing that you’re in an environment where earnings are going to be challenged and stressed in the next part of the business cycle,” he says. He still prefers stocks over bonds because of their lower relative valuation, but he believes investors should invest more in value stocks, particularly in regions like South Asia, which might gain from a broader global recovery and vaccination implementation. He pointed out that for the first half of the year, China was the only country with a positive return on government bonds. In terms of business credit, he pointed to Asia once again, where credit spreads aren’t as tight as they are in the United States. Alternative asset classes, such as infrastructure loans, have also been recommended by HSBC. In terms of commodities, HSBC advises not only industrial commodities but also natural resources such as timber. So far, the results have been positive.
Here’s how different asset classes have fared this year, courtesy of Standard and Poor’s. ADP data and a Didi IPO are on the horizon. The ADP estimate of private-sector payrolls, as well as a Chicago-area purchasing managers index and pending home sales, are all set to be released. Didi Global DIDI, a Chinese ride-hailing firm,
The company has set a price of $14 for its initial public offering, which will begin trading on Wednesday. In an interview with Bloomberg Television, Fed Governor Christopher Waller said he wouldn’t rule out an interest rate hike as soon as next year, but that he would prefer to phase down mortgage-backed securities purchases before Treasury securities due to rising home values. The United States Supreme Court has refused to lift a nationwide moratorium on evictions, with Justice Brett Kavanaugh arguing that keeping it in place until July will allow for a more orderly disbursement of rental-assistance monies provided by Congress. The yield on the 10-year Treasury TMUBMUSD10Y, 1.458 percent fell to 1.46 percent, while U.S. stock futures ES00, -0.04 percent NQ00, +0.01 percent crept down. Bitcoin BTCUSD, -3.50 percent, fell below $35,000 for the first time. Reads at random Giannis Antetokounmpo has become the latest player to suffer an injury during the truncated NBA season’s playoffs. Parents have been warned that their children may be exploiting fruit juice to produce fake positive coronavirus tests. A test flight of a flying automobile over Slovakia was successful. Need to Know starts early and is updated until the opening bell, but you can sign up to have it delivered to your inbox all at once by signing up here. At around 7:30 a.m. Eastern, the emailed version will be sent out. Do you want to know what’s in store for the rest of the day? Sign up for The Barron’s Daily, a daily investor briefing that features exclusive opinion from Barron’s and MarketWatch writers.
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