Getting it right by getting it wrong
US stocks bounced from a 5-day losing streak, helped as treasury yields fell and earnings reports from several marking names came in some good, some not so good and some not quite ugly but not the best of looking. On the macro front the flash purchasing manager surveys were maybe a little better than expected just about sums it up. The US dollar dropped a little, as did gold and oil.
It’s hard to know what will change the market dynamics in the short term, but something will, as it always does. There is plenty of money parked in cash earning a nice safe return, something that has not been said for many a year, itching to get back into stocks. Bonds are boring as all safe assets are but what’s the rush to go back into equities in a material way? There feels a sort of lack of inertia towards the stock market at present.
The historic movement of asset prices through an economic cycle is simple. At the start of an upturn is bonds rise first as central banks look to bring economies out of a slump, equities follow, and then both rally. At some point, bond yields start to rise as prices fall but equities continue to rally as the full effects of rising interest rates have not affected economic growth. Further down the line equities and bond prices fall together, probably where we are now, and at some point, the cycle repeats itself.
Jamie Dimon, CEO of JP Morgan, these days reminds me of the grumpy old men sketches, or the chap on the street corner warning us the end of the world is neigh. Every earnings report is met with the voice of doom and gloom, thankfully many of his worst fears have not been met. His latest missive was criticizing central bankers for getting their forecasts wrong. Interesting as his firm will be full of analysts getting it wrong, the list will be almost endless. Forecasters get it wrong, they guess, that events change, that’s life. The reality is we go through periods of uncertainty, and opportunity that’s what makes life interesting and creates those opportunities. If forecasters got it right, where would the fun be?