Equities have always seen a constant smooth-rough patch, viz. initially, equities will continually rise only to plunge later to an all-time low. It similarly happened in 2018, as after a constant rise, at the end in December 2018, it fell to an all-time low only to rise again during the first quarter of this year.
The latter part has been messier due to risk and volatility on a constant rise, markets turning stagnant and nervous. Hence key queries that arise here is how and measures to control these critical issues? What are the vital areas of focus for investors looking to allocate from here?
The following are the six most sought topics talked in by the Equity Investors.
Global trade has recovered in January, only to plunge presently
Although the ongoing growing trade dispute between US and China, global business continued to surge ahead for the most part of 2018, to fall to 4% during the fag end (November-December) period in one of its most significant decline since 2008.
According to CPB’s report, the global trade numbers have shown a firm rebound with releasing of January’s number which (excludes the US due to the government shutdown). However, the crisis part is that nothing much has changed as the global trade still is in a fragile condition and may continue to plunge more like a distress warning as issued by FedEx’s CEO.
The best solution to control this crisis solution is the US-China deal, which is getting much closer and will be dealt in a few months. However, there is still a high probability for a ‘Softer Version’ that will lead to a more competitive round table conferences, effective technology transfers as well as intellectual property seize.
The timing of Yield Curve Inversion
Yield-Curve Inversion has always been the most sought in financial markets due to its stellar record on as a recession-forecasting indicator. Although it’s a great indicator and proved to be celebrated during curbing recessions, in recent times, the economy is always vast, unpredictable and dynamic. At times, depression can play out entirely differently. It also is a significant indicator of nervous investors and is one of the primary reasons for the Federal Open Market Committee’s (FOMC’s) and play a pivotal role in monetary policy.
Key Decision-making strategy is quite challenging at these times as timing between the yield curve inversion, and a recession is a fluid. All investors must prioritize on the Yield Curve Inversion and other key indicators as to drown in the economic slowdown.
As the initial survey and report by CPB and OECD (Organisation for Economic Co-operation and Development), states global indicators not to be supportive in case of global equities, hence global investors must strengthen in their defense.
Is Powell replaying Greenspan’s 1998 panic?
In 1998, the then-Fed chair Alan Greenspan panicked when Russia defaulted on equity funds and LTCM (Long term capital Management) was bailed out, taking the effective Fed Funds Rate was tanked down by 88 basis point.
Such was the impact that, there was a 27% decline in the NASDAQ Composite Index. Once the Fed Intervened and put an end to the impending bleeding, the economy started an upward trend and with support from aggressive valuation expansion in US technology stocks. The same 1998 situation is slowly taking its shape as though the Fed must pay attention to financial markets in a slow economy, it has risked itself by easing out norms and thus considered a considerable gamble by risking out high-duration assets (technology stocks, real estate, private equity, venture capital, art, etc.) and therefore is created a crisis like that of 1998.
South Korea offers hope of green shoots
While the leading global indicators as measured by The Organisation for Economic Co-operation and Development are still falling, there are huge positives as signs predict a positive phase of the global economy. The December gains have well turned higher in January, and if it continues to spike up in February and March, then it can be predicted from these gains that the global economy is on the rise.
However, the signs in March, was not up to the level as it was in February as, leading South Korean equity index (KOSPI 200) point to weak price action.
IPO market heats up
Lyft in a bid to perform an IPO roadshow would aim to raise $1.95 billion based at mid-level range price of $65/share. The trading will start on April 29Th with Saxo Trader under the ticker code lyft:xnas. It is not exercising a lot of shares and aims to keep free-float limited to 12.2% with fewer underwriters to use over-allotment options.
US small caps are sending out warning signals
The Russell 2000 (US small-cap stocks) is an index to watch as its showing divergence with the S&P 500.
US small caps are behaving similarly to South Korean equities than to the S&P 500.
The Russell 2000 offers a different narrative than the S&P 500, which continues to look strong following the FOMC’s historic pivot on monetary policy.
One joker in the deck for US small caps is that the US budget deficit continues to expand dramatically under the Trump Administration, which is an evident fiscal impulse into the domestic economy that should benefit smaller companies with internal revenue exposure.