Chart of the week: did growth stocks lose their lustre?
For years, US technology stocks have beaten the rest of the market. And not by much. This trend was reinforced by the Covid crisis, which pushed the valuation of growth stocks to unprecedented heights - even higher than during the ‘dot.com’ bubble.
This sky-high valuation was sustainable as long as the earnings growth of these US growth stocks remained superior. But at least in the short term, this seems to be coming to an end. And that is not just because of the disappointing figures from Amazon.
Chart of the week: Homes unaffordable?
Mortgage rates and home prices are skyrocketing worldwide. That is not good news for housing affordability.
The graph below shows the relationship between the one-year change in US 30-year mortgage rates and the one-year change in the ‘Housing Affordability Index’. Roughly speaking, the change in mortgage rates explains about 40 percent of the change in the affordability of a home for sale in the United States.
Chart of the week: managers remain overweight on risk
The latest edition of the Bank of America Global Fund Manager Survey shows that fund managers are still overweight equities while their expectations of future economic growth have fallen sharply.
In fact, the chart below shows that fund managers have never been so pessimistic about growth. Not during Covid and not during the Financial Crisis. The mismatch between expectations and positioning is extreme.
Chart of the week: Rising rates reduce appeal of stocks
Bond yields have shot up worldwide. The US 10-year yield stands at 2.90 percent compared to 1.50 percent at the beginning of the year. This has led not only to one of the biggest falls in bond prices ever, but also to a less attractive valuation of equities.
Chart of the week: What do we really know about inflation?
Most research papers on inflation focus on the period from 1950, after World War II, or from the 1980s after former Fed Chairman Paul Volcker destroyed inflation with a mighty series of interest rate hikes.
Chart of the week: end of the housing bubble?
US mortgage rates have shot up since the start of this year. The 30-year fixed rate stands at 4.5 percent, the highest level since the start of 2019. Will this bring an end to the housing boom?
Contradicting investors
I am a fan of the Bank of America Global Fund Manager Survey. Not only because this survey covers many important investment themes or because the respondents are exclusively investors, as opposed to “connoisseurs” who give their opinions from the sidelines. The survey also regularly exposes the inconsistent behaviour of investors.
On the way to a new recession?
The difference between US 10-year and 2-year yields has fallen to around 45 basis points. That is a flattening of the US yield curve of almost a full percentage point in the last four months. It raises the question of whether a new recession is imminent.
US Treasuries gaining appeal
US 10-year yields rose above 2.0 percent last week. The last time 10-year yields were above 2.0 percent was in July 2019. With skyrocketing inflation and the Fed’s upcoming rate hikes in mind, that probably does not sound so crazy. Yet our model estimate for US 10-year yields points in the opposite direction.
We estimate US 10-year yields using the following factors:
- US unemployment rate
Making most of it while you sleep
After its famous ARK vs. Berkshire Hathaway chart, the Financial Times recently published another strong chart. It shows that the overnight return, the return between the closing and opening of the stock exchange, is many times higher than the return realised during regular stock exchange hours.