Note Précis May 1,2019: Markets Trysting the Night Away- In late 2018 and early 2019, there appeared only a brief pause to consider the long term impact of curbing quantitative ease. Now, markets appear again reverting to momentum whiletrysting the night away based on quantitative ease remaining massive led notably by the Federal Reserve and followed forthwith by other central banks.
From early April 2019 onward have been a corporate results torrent in addition to a series of political and central bank events. Salient remains the issue of appropriate sovereign yields versus deficit policies in public finance. Corporate results worldwide and across industries demonstrate that achieving consistent revenue growth remains difficult. Themarket momentum focus remains on applauding the beating of sharply reduced consensus. Recent covers lauding ostensibly unstoppable equity price increases and demise of inflation likely reflect consensus being fulsome.We believe that standards are overdue of equity valuation versus the deliverability of long term growth. Politicians and momentum traders may scoff at such longer run aspects of public and corporate policy but we assert them to be a crucial part of investment considerations.
We believe that central banks will also need to revert to balancing their long term versus a short term stance that has now stretched into a decade and more. Rarely as far apart as folklore suggests, we see politics and the exercise of central bank policies to be intersecting sooner than many believe. For example, the Federal Reserve likely only has six months or so of latitude and should raise rates 25 basis points in June and September followed by another pause. Volatility increase is likely as the May 1, 2019 FOMC was circumspect.
Numerous elections loom from Asia to Europe to North America. Tripolar geopolitics are evident from Russia asserting interests from Venezuela to eastern Europe to the Middle East to North Korea; in time honored major power fashion from China building out its blue water capabilities and a global infrastructure initiative while the United States appears more introspective. Meanwhile, conflagration remains expansive in the LeVant and into South Asia.
We believe that capital markets are likely underpricing risk by being momentum dominant partly from quantitative ease and partly as complacency occurs when cycles mature. Some fraying can be seen in post IPO 100 year bond and concept equities pricing. Quality and diversification appear key as do signals from the Financials sector. StrategeInvest’s independent consultancy operates as Subodh Kumar & Associates. The views represented are those of the analyst at the date noted. They do not represent investment advice for which the reader should consult their investment and/or tax advisers. Any hyperlinks are for information only and not represented as accurate. E.o.e