[ad_1]
NEW YORK (AP) – With the US economy buzzing, corporate profits and stock prices spiking, Wall Street investors are starting to ask a worried question: Is everything down from now? ‘here ?
Financial markets always try to price now to determine where the economy and corporate earnings are likely to be in the future. And while readings across the economy are still at breathtaking levels, investors are seeing some areas of concern.
New variants of the coronavirus threaten to weaken economies around the world. Many of the US government’s pandemic relief efforts are fading. Inflation is raging as supplies of goods and components fail to meet growing demand. And the beginning of the end of the Federal Reserve’s aid to markets is looming.
Nervousness has been largely cast aside by investors so far – broad metrics like the S&P 500 and the Nasdaq composite are hitting all-time highs. In fact, major stock market averages have nearly doubled since the March 2020 low.
The US recovery from the recession is proceeding so rapidly that many forecasters estimate the economy will grow around 7% this year. It would be the strongest calendar year growth since 1984.
Economies outside the United States are also showing sustained growth. China’s economy, the world’s second-largest, has slowed sharply from a year ago, although Beijing said it grew nearly 8% between April and June. And among European countries that use the euro, growth for 2021 is expected to reach a sustained rate of almost 5%.
Yet some sudden movements beneath the surface of the stock market and into other markets show renewed hesitation and anxiety in the face of potential economic threats. Longer-term U.S. government bond yields fell, for example, as stocks of companies most closely tied to the strength of the economy collapsed.
For now, many voices on Wall Street see the nervousness as just a hang-up: They predict that stocks and bond yields will rise throughout the year as the economy and corporate earnings continue to grow. There are many factors behind the recent changes in the markets, in particular the sharp drop in bond yields, including some technical factors that have likely made the swings worse and could be short lived.
But some of those same analysts also recognize that shifting signals in the markets can be an inflection point after months of gangbuster performance and runaway optimism. The fear is not that economic growth will slow down. It is that any threat to the economy will weaken growth too much, too quickly, and possibly even derail the recovery from the pandemic recession and suck corporate profits.
“We don’t see it stagnating or reversing, but it is clearly aging,” said Rich Weiss, senior vice president of American Century Investments, of the economic recovery. “We have this whole deceleration theme going on to say that ‘The best is yet to come’ is no longer the case. We have definitely reached a peak.
When asked why investors would be worried about a slowdown when growth rates appear so high that they are unsustainable, Weiss suggested that uncertainty can often lead investors to contemplate the worst-case scenario. case.
“The unknown of what you are going to do is very important,” he said. “We have been riding this huge reopening of the stimulus economy and trade. Yes it will slow down, but what is it going to slow down to? If the job market is still weak, are we slowing down to something in the range of 4% to 5% “economic growth”, or are we slowing down to 2%? It would be a negative surprise that could shake up the bond and equity markets. “
Concerns arose at the start of the year in the bond market, which has a reputation for being more rational and sober than the stock market.
The 10-year Treasury yield, which moves with expectations of economic growth and inflation, had passed 1.75% in March after more than doubling in four months. Optimism was mounting that life would return to normal as the economy reopened and COVID-19 vaccinations rolled out. But it also fueled concerns about the sharp rise in inflation.
However, the 10-year rate fell below 1.25% last week. The multi-month decline came as investors moved more in line with the Fed’s insistence that high inflation appears to be only temporary. The fall accelerated after a few reports showing that economic growth remained strong but not as strong as Wall Street had expected.
The stock market, which had hit record highs, fell almost 1% one day last week. The decline was modest but enough to lead some analysts to suggest stocks are finally paying attention to the bond market signal.
Instead, the S&P 500 quickly resumed its records on the last Monday. This is one of the puzzling things for David Joy, chief market strategist at Ameriprise.
If the bond market signals concerns about future economic growth, Joy said, it is surprising that stocks have performed so well. The same goes for “junk” bonds, which are those issued by companies with low credit ratings. And corporate bonds are expected to offer more yields than Treasuries than they currently are.
“Historically, the bond market has often provided a good early warning signal,” Joy said. “I don’t know if that’s the case this time, necessarily, because we don’t really know what is driving the rates down.”
Along with concerns about spike in growth and viral variants, analysts point to other possible reasons for lower yields. They include the purchase of treasury bills by investors from countries with even lower rates, pension funds shifting some of their investments from stocks to bonds, and a rush of traders simultaneously exiting bets to keep rates going. to increase.
Although the S&P 500 is near its all-time high, some market watchers say movements in the stock market have also shown signs of concern. Over the past two months, the synchronized upward movements for many areas of the market on the blossoming optimism have collapsed, according to Deutsche Bank strategists. As large US stocks continue to climb, the smaller stocks in the Russell 2000 Index have stalled since peaking in March – and the outlook for these companies is more closely tied to the economy.
[ad_2]
Source link