Insights

Top News:

8/17: Japan, the world’s third largest economy, reported a 2Q GDP contraction of 27.8% from one year ago.

 

8/18: On the heels of a notable turnaround in home-building activity, both the S&P 500 and NASDAQ  finished at record closing highs, marking the shortest bear market in history.

 

8/19: Minutes from the Fed’s July meeting warned that “ongoing public health crisis would weigh heavily on economic activity, employment, and inflation in the near term.”  Meanwhile, the mid-August trade meeting between the U.S. and China has been postponed indefinitely.  Across the Atlantic, consumer prices in the EU and the U.K. saw unexpected annual increases in July (a development yet to become a trend, however).

 

8/20: New applications for unemployment benefits climbed unexpectedly to 1.11 million, though continuing claims declined to 14.8 million.

 

8/21: U.S. existing home sales jumped to a seasonally-adjusted annual rate of 5.86 million in July, attributed to homeowners seeking larger homes as remote working takes stronger hold.  Concurrent with the release of additional trial data, Pfizer and BioNTech said their vaccine is on track for regulatory review as early as this October.  Reflecting a continuing cautious attitude and an uneven recovery path, one Eurozone manufacturing indicator came in below expectations for August. 

 

Heard on the Street:

“Stock market crashes happen as a direct result of overvaluation. I don’t think there are many people around right now that would argue against the fact markets are quite overvalued.  Maybe they’ll get more overvalued… this is the setup up for left tail events in stock markets.”

— Mark Spitznagel, founder of Universa Investments in a CNBC interview on 8/17/2020

 

“As the rebound in the economic indicators continues to gather pace, we think we have left behind the worst of the disinflationary pressures and that reflation is already under way.  Moreover, the recent rise in commodity prices and the depreciation of the U.S. dollar will also add to the inflationary pressures, particularly in the U.S.”

— Morgan Stanley economics research team on 8/18/2020 as quoted by MarketWatch

 

Longer Game:

Noting that the V-shaped recovery in the stock market appears predicated upon expectations of the Fed’s monetary support, James Montier of GMO characterized the current market sentiment as “extreme overconfidence, especially given the vast and imponderable questions that define today’s environment.”

 

Brazil, India, and South Africa, collectively representing more than 10% of global GDP, face “bleak” prospects of recovery from Covid-19 relative to other G-20 peers, according to one study.

 

Bonus:

Latest monthly survey of institutional investors by Bank of America revealed a plurality now believing the stock market to be in a bull phase versus a bear-market rally by a 46%-to-35% margin.