For several years I have argued, based on comprehensive statistical evidence, that corporate financial reports―quarterly and annual statements―have lost most of their relevance and usefulness to investors.
On a day like yesterday when more than half of the US tech sector was down more than 2%, we are reminded of the benefits of diversification. Yet, diversification would not have helped one participate in the market’s rise to the highest level since February.
Recently, fears of a slowdown in global growth brought on by a trade war have led to turbulence in cyclical assets. The US Dollar has risen while commodities and emerging markets have struggled.
We calculate statistics for all developed and emerging equity markets around the world. For our mid/large cap indexes, we take the top 85% of all stocks in a given region or country and convert all prices into US Dollars.
Stock and currency markets often take their cues from the credit markets, so we find it instructive to keep a close eye on credit spreads and credit default swaps (CDS). Looking at the credit markets in the emerging markets, we think there may be initial signs that the storm that has engulfed emerging market assets may be over.
There has been considerable discussion lately about the slowly inverting yield curve and what it may signal for growth prospects going forward. Commonly used as a proxy for the yield curve is the spread between 10-Year US Treasury yields and 2-Year US Treasury yields.
In light of Fed Chairman Powell’s congressional testimony, we thought it relevant to revisit the inflation story and provide yet more evidence that the trend in inflation continues to be higher. For now, the Fed has assessed the risks to inflation and growth as balanced in both directions, which is Fed-speak for a policy that is on auto pilot.
The US shale boom has led to a surge in the production of crude oil, and much of this production has been exported in recent years. In the chart below, I plot the gross exports of crude oil from the US. Beginning with almost nothing several years ago (in part because crude exports were banned until December 2015), US daily crude exports have eclipsed two million barrels per day.
Emerging market stocks have taken it on the chin so far in 2018, down 9% and unperperforming the MSCI World Index by about 8%. There are of course plenty of excuses for such bad performance, from trade related issues to the breakdown of the synchronized global growth story.
The Chinese Yuan has fallen precipitously in the last 10 weeks raising concerns of whether China was using the currency as a weapon to preemptively mitigate looming tariffs.