It’s going to get trickier for the stock market. Here’s what to watch now, says the HSBC strategist. – .

It’s going to get trickier for the stock market. Here’s what to watch now, says the HSBC strategist. – .

It’s the last trading day of the second quarter, and what a race it has been, although things have been a bit quiet lately.

Le S&P 500 SPX,
climbed 8% in the second quarter, extending its lead from five quarters to a staggering 66%. For all the worries about mega-cap tech stocks in the face of rising bond yields, the Nasdaq Composite COMP,
jumped 10% to take its five quarters to 89%. “I think the drivers are pretty well known at this point. This is the story of the recovery, ”said Joseph Little, chief global strategist at HSBC Asset Management, highlighting the global economic recovery, vaccine deployment and supporting fiscal and monetary policy.

Little, however, doesn’t expect the party to last much longer. “I think there is an important transition underway in the macroeconomics and in the markets,” he says, adding that it looks like we have passed peak growth in the United States, China and most of the world. Asian industrial countries. Policymakers are “itchy on the brake pedal,” not only in the United States, where Federal Reserve officials are discussing cutting bond purchases, but also in Asia, he said. “And I think for the markets it could mean things get a little more complicated,” Little said.

Historically, in the booming phase of the business cycle, earnings are still good but multiples are starting to drop, Little said. He also noted the “fairly steep” flattening of the yield curve after the recent Fed move, which he said is another indicator that the elements of reflation trade have really run their course. The next earnings reporting season will be especially important now, as it will be the driving force behind the market direction.

According to Little, expected asset returns have fallen across almost all asset classes. “It’s about being realistic, accepting this message of lower expected returns and understanding the fact that you find yourself in an environment where, in the next phase of the business cycle, profits are going to start to face a downside. challenge and some stress. ” he says.

He still prefers stocks over bonds because of their relative valuation, but says investors should be more exposed to value stocks, especially in a region like South Asia that could benefit from a global recovery and deployment. vaccines. He noted that China generated the only positive return on government bonds in the first half of the year. In business credit, he again singled out Asia, as credit spreads are not as tight as in the United States.

HSBC also recommended alternative asset classes, including infrastructure debt. In raw materials, HSBC recommends not only industrial raw materials but also natural resources such as wood.

Performance so far

Courtesy of Standard and Poor’s, here is how the different asset classes performed this year.

ADP and IPO data Didi on the bridge

The ADP estimate of the private sector wage bill showed a gain of 692,000 for June, down from 886,000 in May, but still the second highest since September. After the opening, a Chicago area purchasing managers index and pending home sales will be released.

The Chinese carpooling company Didi Global DIDI,

valued its initial public offering at $ 14 and is expected to start trading on Wednesday.

Fed Governor Christopher Waller did not rule out an interest rate hike as early as next year, in an interview with Bloomberg Television, and said he would prefer to phase out purchases of asset-backed securities. mortgage before Treasury securities because of soaring house prices.

The U.S. Supreme Court refused to lift a nationwide moratorium on tenant evictions, Justice Brett Kavanaugh said leaving it in place for July would allow for a further and more orderly distribution of rent assistance funds allocated by the Congress.

US ES00 equity futures contracts,

were stable, and the yield on the 10-year Treasury bill TMUBMUSD10Y,
slipped to 1.45%.

Bitcoin BTCUSD,
-4,32 %
fell below $ 35,000.

Random readings

Giannis Antetokounmpo became the latest star to get injured in what was a brutal playoffs in the National Basketball Association’s shortened season.

A school has warned parents that children could use fruit juices to generate false positive coronavirus tests.

A flying car successfully completed a test flight over Slovakia.

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