A Moderating Recovery, Investor Euphoria, and a Growing Risk for Fixed Income Investors
December 16, 2020 | FIRESIDE CHARTS
While U.S. industrial production exceeded expectations in November and is still inching closer to full recovery, momentum has slowed as Covid’s second wave takes hold. Vaccines arrived in the U.S. this week though—could that reinvigorate growth or are we on track to mirror the long, slow recovery that followed the Great Recession? And as Congress prepares to unveil a $1.4 trillion omnibus spending bill and debates the details of another round of stimulus, we’re forced to ask: can economic conditions loosen much further? Call option volume has soared to unprecedented heights in yet another indicator of investor euphoria, driven largely by retail investors. Are they prepared to face—and react appropriately to—some market realities? Meanwhile, growing duration risk is a concern in the fixed income space, and could EM equities be preparing to break out as they butt up against long-term resistance?
1. While U.S. industrial recovery continues, it looks like the trend is moderating, similar to what happened following the Great Recession.
Source: The Daily Shot, from 12/16/20
2. Covid is helping “cause” this moderation, as shown in the NY Fed’s regional survey:
Source: The Daily Shot, from 12/16/20
3. So far, the Fed and Washington have done just about everything possible and have created the most accommodative economic conditions on record. Will Washington come through again?
Source: The Daily Shot, from 12/16/20
4. A new, rather worrisome trend. Greed and FOMO is driving retail investor behavior. Fear is even a more powerful emotion, and a concern is the likely (over)reaction to any correction.
Source: Charles Schwab, Bloomberg, as of 12/9/20
5. Interesting…
Source: Goldman Sachs Global Investment Research, Rueters, from 12/16/20
6. Bond indices have been increasing their duration risk…
Source: The Daily Shot, from 12/15/20
7. Will EM equities finally break out to the upside?
Source: The Daily Shot, from 12/16/20
8. Japan’s recovery has been slower than most, but is on the edge of growth (50 or more) again…
Source: The Daily Shot, from 12/16/20
Disclosure: The charts and infographics contained in this blog are typically based on data obtained from 3rd parties and are believed to be accurate. The commentary included is the opinion of the author and subject to change at any time. Any reference to specific securities or investments are for illustrative purposes only and are not intended as investment advice nor are they a recommendation to take any action. Individual securities mentioned may be held in client accounts. Past performance is no guarantee of future results.