Throwing bankers under the bus ... sorry Throwing bankers under the bus ... sorry\images\insights\article\bank-closeup-small.jpg January 21 2020 November 8 2019

Throwing bankers under the bus ... sorry

As long as investor sentiment remains subdued, this uptrend could continue.
Published November 8 2019
My Content

Stupid logistics this week. First a stop to speak at an event for accomplished San Francisco business women on a spectacular day, and then leaving my hotel at 4 a.m. for an early flight to Hershey. From my hotel, I took the taxi sitting just outside. The bellhop had to wake the driver, who’d been sleeping there for three hours since, “you know, everyone takes Uber.” Well he woke up to share his strong opinions about Uber. “Sure you could get a lower price. But a lady such as you shouldn’t go in Uber. Male drivers salivate with women passengers.” “Not this old lady,” I said. Now, (objectively), I was rocking my llama fur sweater-coat and I swear I wasn’t fishing for a compliment, but he didn’t have to reply “it doesn’t matter.” At the Hershey Lodge (my first sighting of Christmas decorations this season), on the elevator and on my way to present, I met an older gentleman. He was smiling and admiring my (objectively) fabulous Prada shoes, so I mentally forgave his Philadelphia Eagles hat. “So, which group are you with?” “The Pennsylvania Bankers Association meeting.” His smile disappeared as he figures “bankers make too much money!” “No, no, I’m not a banker myself,” I protested.

So far in Q4, the S&P 500 is up nearly 4% and the yield curve has steepened to its widest since January on rising trade optimism and waning global recession fears. Thursday, the 10-year Treasury yield jumped 15 basis points, its biggest 1-day move since a 20-point spike the day after Trump’s election. The breadth of economic data (more below) is improving faster than sentiment, which continues to reflect investor pessimism. In fact, Wall Street’s recommended allocation to equities flatlined in October at a 2-year low. Consensus tends to be a reliable contrary indicator, and history suggests mid-teens returns over the next 12 months. As an aside, most of my market sources turned bullish this week. With the S&P breaking above its 2-year trend of going nowhere (with a lot of volatility in between), some consolidation should be expected. But the uptrend appears fairly established, with the percentage of stocks trading above their 50-day moving average near the 80th percentile and the New York Stock Exchange cumulative advance-decline line setting another record high. After their Q2-Q3 pause, global equity markets appear to be entering their second bull-market up-leg. The MSCI World Ex-USA is hitting yearly highs and keeping pace with the S&P, and the MSCI World Index is up 22% year-to-date, beating the second-best performing asset class, high-grade credit, by 10 percentage points. Fundstrat expects this move to have legs well into Q1, aided by a positive market-cycle backdrop, underweight equity positioning, central bank accommodation and a low-inflation, low-rate environment.

While a trade deal could lead to significant outperformance in value stocks, Empirical Research believes it will quickly run out of gas, setting up momentum stocks for a strong rally after one of their worst performances in 67 years in October. Even though at this writing the S&P already has risen 23% year-to-date (though just 10% over the last 12 months thanks to 2018’s swoon), the market is entering the calendar’s traditional sweet spot. With institutional positioning restrained—an important distinction from the late-2017/early-2018 melt-up—Wolfe Research expects this performance breakout to continue. We may be hitting an inflection point on negative interest rates. (Can we pray on that?) The amount of negative-yielding bonds globally has fallen nearly $5 trillion over the past two months, with the German 10-year bond trading at its highest yield since June and its 20-year yield positive for the first time since July. New European Central Bank President Christine Lagarde has expressed skepticism about negative rates (You go girl!), as has Sweden’s central bank. Meanwhile, bankers (to be clear, my favorite group, after women, obviously) association season marches on, and two more flights. It’s already dark in Birmingham and not yet 5 p.m. (must be the easternmost part of central zone). I broke up a discussion among more lonely taxi drivers for a lift on this rainy night and was told twice as we commenced that “it’s rush hour, you know.” He warned me the 14-mile ride would be long with thick traffic on three and four lanes each way—in Birmingham?! He would spend an hour returning to the airport (who’s getting a special Linda bonus tip!). Richard is a Chatty Cathy, fine, but I can barely understand his thick southern accent. The card he’s given me has an eagle resembling Federated’s, with the words, “In God we Trust. In Jesus we Must.” Amen, brother!


  • Services surprise The Institute for Supply Management (ISM) survey of services activity came in higher than expected for October, led by acceleration in new orders and business activity. Of 18 industries surveyed, 13 were growing. Markit’s separate gauge wasn’t as robust, but optimism about the year ahead hit a 4-month high.
  • The global economic cycle may be turning A week after China’s Caixin gauge of manufacturing rose at is quickest pace in 2.5 years, eurozone retail sales and its services PMI beat expectations. In the U.S., the ISM manufacturing exports component jumped above 50. Since 1950, moves above 50 have been associated with re-acceleration and average earnings-per-share growth of 18%.
  • Capex isn’t struggling as much as headlines suggest … Weakness in capital expenditures (capex) is concentrated in structures and transportation equipment, as spending on industrial equipment actually rose to a record high during Q3. Spending on information processing equipment, software and R&D also remains strong, accounting for an increasing share of nominal capital spending budgets.


  • … but its slowdown is hurting manufacturing Nondefense capital goods orders ex-aircraft, a key capex measure, fell again in September, and overall factory orders declined a second straight month and, year-over-year, were down the most in three years.
  • Trade is the culprit On a 12-month basis, October’s trade deficit remained close to its widest gap since January 2009. While narrowing with China as the two countries battle, deficits with most other major trading regions/countries increased, reaching record levels with the European Union and Mexico.
  • The markets expect consumers to come through With Black Friday just three weeks away, Bloomberg’s consumer sentiment survey sounded a sour note, falling a third straight week to its lowest level since April. The 3-week cumulative decline was the biggest since May 2012. However, the final read on October consumer sentiment by the University of Michigan edged up a fourth straight month, led by a 4-month high in expectations.

What else

It’s not just politics where we’re divided There’s a record high discrepancy between CEO and consumer expectations, according to Conference Board survey data going back to 1976, with consumers very optimistic and corporate chiefs unusually pessimistic. Maybe it’s because CEOs are worried about Elizabeth Warren, who on betting sites has emerged as the Democratic front-runner. Forecasters predict the stock market could crash 25% if she’s elected. (Of course, they expected a 15% hit if Trump won the 2016 election.)

Throwing Biden under the bus! Of course, Warren would have to beat Trump, and polls this week in battleground states suggest she’s too liberal to do so. Michael Bloomberg appears concerned enough that he reportedly may enter the Democratic primary. Resource-wise, he’d be formidable. Cowen & Co. says Bloomberg has built the most impressive national political infrastructure outside of the political parties, announced candidates and possibly the Koch network.

If Trump loses, it won’t be for lack of resources September’s $27.3 million haul by the Republican National Committee (RNC) represented the best non-election-year month in the history of either party. And combined with online donations, the Trump campaign and the Make America Great Again Committee, the Q3 total hit $45 million, with a surge in first-time small-dollar donors, Real Clear Politics reports. By Election Day, the RNC hopes to have 2 million volunteers coordinated by 60,000 trained grassroots volunteers, vs. just 5,000 in 2016.

Connect with Linda on LinkedIn

Tags Equity . Markets/Economy .

Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.

Bond prices are sensitive to changes in interest rates, and a rise in interest rates can cause a decline in their prices.

MSCI World ex USA Index captures large and mid-cap representation across 22 developed market countries excluding the United States. Indexes are unmanaged and investments cannot be made in an index.

MSCI-World Index: An unmanaged index representing the stock markets of 23 countries, comprising 1482 securities-with values expressed in U.S. dollars. Investments cannot be made directly in an index. Indexes are unmanaged and investments cannot be made in an index.

S&P 500 Index: An unmanaged capitalization-weighted index of 500 stocks designated to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Indexes are unmanaged and investments cannot be made in an index.

Stocks are subject to risks and fluctuate in value.

The Bloomberg Consumer Comfort Index is based on weekly telephone survey of consumers seeking their views on the economy, personal finances and buying climate.

The Eurozone Purchasing Manufacturers Index (PMI) of services is monthly gauge of the level of services activity in the euro zone.

The Institute of Supply Management (ISM) manufacturing index is a composite, forward-looking index derived from a monthly survey of U.S. businesses.

The Institute of Supply Management (ISM) nonmanufacturing index is a composite, forward-looking index derived from a monthly survey of U.S. businesses.

The Markit Services PMI is a gauge of service-sector activity in a country.

The University of Michigan Consumer Sentiment Index is a measure of consumer confidence based on a monthly telephone survey by the University of Michigan that gathers information on consumer expectations regarding the overall economy.

Value stocks tend to have higher dividends and thus have a higher income-related component in their total return than growth stocks. Value stocks also may lag growth stocks in performance at times, particularly in late stages of a market advance.

Yield Curve: Graph showing the comparative yields of securities in a particular class according to maturity. Securities on the long end of the yield curve have longer maturities.

Federated Equity Management Company of Pennsylvania