A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
Credit Suisse strategist Andrew Garthwaite is almost always rated among the best in the world, and I’ve followed his work for decades.
In a recent report, Mr. Garthwaite noted that he was bullish on equity markets (thanks to low interest rates, central bank liquidity and growth stock valuations that are high but not yet excessive) in the short term but had one major worry for the medium term,
“[Credit] is perhaps the area where we find ourselves most concerned. Normally, the recent rise in markets would be associated with lower [corporate bond] spreads … Normally, credit is the early warning signal: historically, credit spreads rise for seven months and by 140bp while equities hit new highs (rising by 12%)”
The strategist went on to remind investors that credit spreads have widened ahead of eight of the last nine bear markets – spreads are, for me, the main indicator to watch in assessing the length of the current bull market. Currently, investment grade credit spreads are not narrowing with the equity rally, a potential warning sign.
“@SBarlow_ROB CS: “This is perhaps the area where we find ourselves most concerned” (he’s generally bullish)” – (research excerpt, chart) Twitter
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Citi global strategist Robert Buckland uses a bear market checklist to warn of impending recession and equity bear market,
“[The checklist] has correctly argued to stay invested the last several years, and continues to do so today… “
Of the 18 global recession indicators, only two are flashing red and another four are in the warning zone. The table linked to below shows how the situation now compares with 2000 and 2007 ahead of market downdrafts.
“@SBarlow_ROB C bear market checklist says buy the dip” – (full table) Twitter
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In a separate Citi report, analyst Dirk Willer warned investors that the economic damage from the coronavirus is only beginning to be felt,
“Economic damage still to come, and will likely be significant. China added stimulus. Clearly, it is still too early to assess the extent of the economic damage from the coronavirus. Our hunch is that Chinese (and global) authorities will be very risk averse, possibly prolonging the Chinese New Year break by another week or even more. This clearly means that the next few months of economic data will be underwhelming, and possibly worse than expected even now. But presumably the number of infections is the leading indicator to watch, rather than the more lagging economic data. And there is also stimulus in the pipeline”
“@SBarlow_ROB C: "Economic damage [from coronavirus] still to come, and will likely be significant"’ – (research excerpt) Twitter
“Virus Hits Copper Trade as China Asks Chile to Defer Cargoes” – Bloomberg
“Burberry says coronavirus has wiped out three quarters of its sales in China” – Bloomberg
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Diversion: “Researchers have successfully bypassed the eyes with a brain implant that gives blind people rudimentary vision” – M.I.T. Technology Review
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Scott Barlow