Stock valuation metrics look increasingly stretched

The Daily Shot: 12-Jan-21
Administrative Update
Equities
Rates
Commodities
Energy
Cryptocurrency
Emerging Markets
China
South Korea
Europe
The United Kingdom
Canada
The United States
Global Developments
Food for Thought



 

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Equities

1. Tech stocks came under pressure on Monday in the aftermath of the Capitol attack last week.
 
Source: BBC   Read full article  
 
Nasdaq 100:
 

 
Communication Services:
 

 
Tech:
 

 
Value shares outperformed.
 

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2. The total market cap of negative-earning IT firms is nearing the $1 trillion mark.
 
Source: @KailashConcepts  
 
3. This table shows the frequency of S&P 500 pullbacks (down 4% to 8%) in the first quarter of each calendar year.
 
Source: Longview Economics  
 
4. The Russell 2,000 held long-term support relative to the Nasdaq 100, … 
 
Source: Dantes Outlook  
 
… and the ratio has risen along with Treasury yields over the past few months.
 
Source: BCA Research  

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5. Since its launch in 2003, the S&P 500 equal weight index has outperformed the S&P 500 (which is cap-weighted) by about 1.2% per year. 
 
Source: S&P Global Market Intelligence  
 
Here is the sector distribution of the equal-weight index.
 
Source: S&P Global Market Intelligence  

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6. There was a dramatic reversal in relative performance across the S&P 500 cap spectrum last year. 
 
Source: S&P Global Market Intelligence  
 
7. US factory activity points to a rebound in revenues.
 
Source: Yardeni Research  
 
8. US companies with weak balance sheets have been outperforming since the vaccine news last fall.
 

 
9. The median age of companies going public has collapsed.
 
Source: BCA Research  
 
10. Analysts remain concerned about frothy valuations.
 
The S&P 500 12-month forward P/E ratio:
 
Source: BCA Research  
 
Price-to-sales, price-to-book, and price-to-cash flow:
 
Source: BCA Research  
 
Market capitalization relative to the GDP:
 
Source: @StrategasRP, @johnauthers   Further reading  

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11. Extreme investor enthusiasm is also a concern. Here are the flows into the ARK Innovation ETF.
 
h/t Bianco Research  
 
12. Rising bond yields could pressure global equities.
 
Source: BCA Research  


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Rates

1. The 10yr – 2yr Treasury yield spread topped 1% for the first time since 2017 as the curve steepens.
 

 
2. Treasury term premium is recovering quickly.
 

 
3. Next, we have the decomposition of Treasury yields into real rates (TIPS yield) and inflation expectations.
 
Source: @WSJ   Read full article  
 
4. How much would the 10yr Treasury yield rise without the Fed’s QE program?
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
5. Here is how the distribution of inflation outcomes has shifted in the options market.
 
Source: Goldman Sachs  
 
6. This chart shows the Oxford Economics’ estimate for the neutral rate (r*).
 
Source: Oxford Economics  
 
7. Below is a summary of the Fed’s emergency programs and their utilization.
 
Source: @WSJ   Read full article  


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Commodities

1. Gold is at support.
 
Source: barchart.com, h/t @MarkCCranfield  
 
2. Gold miners’ cash flow has improved.
 
Source: @TaviCosta   Read full article  
 
3. European emission contracts continue to rally as the EU implements stricter environmental rules.
 


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Energy

1. The US rig count is recovering as oil prices strengthen.
 

 
2. European refinery margins have rebounded from the pandemic lows.
 

 
3. Asia is importing more US LNG as the US-Asia natural gas price differential explodes.
 
Source: @WSJ   Read full article  
 
Source: @WSJ   Read full article  


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Cryptocurrency

1. Trading volume on major cryptocurrency exchanges reached a new all-time high. 
 
Source: CoinDesk   Read full article  
 
2. The number of Bitcoin accounts (addresses) holding more than 1,000 Bitcoin has surged along with the price last year.
 
Source: CoinDesk   Read full article  
 
3. What is the correlation between Bitcoin and other asset classes?
 
Source: CFA Institute  
 
4. Which demographic groups are most familiar with Bitcoin?
 
Source: Morning Consult   Read full article  


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Emerging Markets

1. India’s central bank is starting to pull some liquidity from the market.
 
Source: @markets   Read full article  
 
Short-term bond yields climbed, and the curve flattened.
 

 

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2. Israel is facing mounting disinflationary pressures as the currency continues to strengthen.
 

 
3. Mexico’s industrial production was firmer than expected in November.
 

 
4. EM (ex-China) equity flows finished 2020 in negative territory. 
 
Source: IIF  
 
Overall capital flows recovered strongly last year compared to previous stress episodes. 
 
Source: IIF  

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5. EM foreign exchange reserves increased sharply last year.
 
Source: TS Lombard  
 
6. This chart shows EM growth in Q2 and Q3 of last year.
 
Source: Gavekal Research  


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China

1. Let’s start with the distribution of last year’s consumer spending.
 
Source: ANZ Research  
 
2. Chinese demand for Japanese goods is rising.
 
Source: TS Lombard  
 
3. Chinese companies raised quite a bit of money in the US.
 
Source: @financialtimes   Read full article  
 
4. There is a new small outbreak of COVID cases in China.
 
Source: Gavekal Research  
 
5. Hong Kong will broaden its cross-border investment channels with mainland China’s stock exchanges. 
 
Source: South China Morning Post   Read full article  
 
6. The UK may extend its passport program for Hong Kong citizens.
 
Source: Statista  


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South Korea

South Korean stocks outperformed sharply this week.
 
Source: @DavidInglesTV  
 
Equity prices rose with trade activity over the past year. 
 
Source: BCA Research  
 
Exports finished the year on a strong note.
 
Source: Barclays Research  


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Europe

1. The Sentix investor confidence indicator was softer than expected.
 

 
2. Spain’s November industrial production report was disappointing.
 

 
3. Ireland has been hit hard by COVID.
 
Source: Goldman Sachs  
 
4. Here is the evolution of the euro-area excess reserves.
 
Source: ECB   Read full article  
 
5. This chart shows government budget deficits across the Eurozone.
 
Source: ECB   Read full article  
 
6. When will the EU hit herd immunity?
 
Source: Commerzbank Research  


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The United Kingdom

1. The BRC retail sales index remains elevated.
 

 
2. This chart compares last year’s consumption trends in the UK with France, Germany, and Italy.
 

 
3. UK port activity has slowed, and time in port has increased in recent days.
 
Source: Huq   Read full article  
 
4. What do CFOs think about the points-based immigration system?
 
Source: Statista  


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Canada

1. Bond yields have risen sharply (driven by higher Treasury yields).
 

 
2. Consumer confidence has recovered to pre-pandemic levels.
 

 
3. Business outlook improved substantially over the past two quarters.
 

 
4. Inflation expectations continue to rise. 
 
Source: Scotiabank Economics  
 
5. The market is pricing in a neutral rate of interest that is at the low-end of the Bank of Canada’s estimated range. 
 
Source: Scotiabank Economics  
 
6. The iShares Canadian value ETF (XCV) is rising relative to the iShares Canadian growth ETF (XCG).
 
Source: Dantes Outlook  
 
7. Here is how Canada’s budget deficit compares to other developed countries. 
 
Source: Scotiabank Economics  
 
8. When will Canadians get vaccinated?
 
Source: Scotiabank Economics  


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The United States

1. According to Nomura’s estimate, the core CPI moderated last month.
 
Source: Nomura Securities  
 
Rent has been dragging inflation lower during the COVID downturn.
 
Source: Nomura Securities  
 
When will inflation reach the Fed’s target?
 
Source: @markets   Read full article  

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2. Next, we have some updates on employment.
 
Will another huge stimulus injection deliver a full labor market recovery by 2023?
 
Source: Moody’s Analytics  
 
Manufacturing employment continues to lag the recovery in pay.
 
Source: @WSJ   Read full article  
 
Here is the IHS Markit forecast for the 2021 rebound in nonfarm payrolls.
 
Source: @WSJ   Read full article  
 
This chart shows the drivers of labor slack.
 
Source: @ernietedeschi  

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3. Scotiabank expects another massive increase in government debt as a percent of GDP.
 
Source: Scotiabank Economics  
 
4. Inventories of construction materials remain depressed amid the pandemic-driven residential construction boom.
 

 
5. According to BCA Research, US households have accumulated $1.5 trillion of “excess” savings.
 
Source: BCA Research  
 
6. When will the GDP return to its pre-pandemic path?
 
Deutsche Bank:
 
Source: Deutsche Bank Research  
 
Morgan Stanley:
 
Source: Morgan Stanley Research  


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Global Developments

1. Global equity valuations have surged, partly driven by declining bond yields (2 charts).
 
Source: BCA Research  
 
Source: BCA Research  

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2. Here are the CPI components for select economies.
 
Source: OECD   Read full article  
 
3. This chart demonstrates the decline in labor force participation as a result of the pandemic.
 
Source: BlackRock  
 
4. According to Morgan Stanley, central banks’ balance sheets won’t peak before the end of 2022.
 
Source: Morgan Stanley Research  
 
5. The global output gap is expected to shrink this year. 
 
Source: Mizuho Securities USA  


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Food for Thought

1. US student debt across income and wealth levels:
 
Source: @WSJ   Read full article  
 
2. Top ten most spoken languages:
 
Source: Visual Capitalist   Read full article  
 
3. Net population flows in select US cities:
 
Source: @WSJ   Read full article  
 
4. US box office earnings:
 
Source: Statista  
 
5. Parents struggling to pay rent:
 
Source: CBPP   Read full article  
 
6. Changes in vaccination intentions:
 
Source: Statista  
 
7. Vaccine sources and destinations:
 
Source: The Economist   Read full article  
 
8. Vaccine demand and supply:
 
Source: Fitch Ratings  
 
9. COVID deaths (per 100k):
 
Source: @financialtimes   Read full article  
 
10. How Americans view the Capitol building attack:
 
Source: Statista  
 
11. Georgia Senate runoffs turnout:
 
Source: FiveThirtyEight   Read full article  
 
12. Lying about someone’s cooking:
 
Source: @YouGovAmerica   Read full article  

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