Last week featured a “turnaround Tuesday” after a rough start. Can the same thing happen today?
So far, there’s signs of it despite the fact that news-wise, not much has changed since yesterday when stocks sold off. People are anticipating a good earnings season and the market is overall kind of ignoring the Washington drama. At the same time, bond yields continue marching upward and volatility edged lower overnight.
The 10-year yield hit 1.17% this morning, the highest in 10 months, and crude climbed above $53 a barrel for the first time in 11 months as investors anticipated another drop in U.S. inventories. These kinds of moves can be signs of renewed economic hopes, even though the latest wave of the pandemic shows no signs of easing off. After months of piling into bonds and holding on tight, investors seem to be abandoning them rapidly. Which raises the question, where is this money going to go?
Commodities are notorious for their ability to do a complete about-turn and make fortunes for investors that didn’t give up on the sector. After almost a decade of being out of favour, a broad rally in the sector last year has prompted predictions of another supercycle akin to the almost deca.
Speculators have responded forcefully to the improved sentiment during the past six months and as we enter 2021, they hold a total net long across 24 commodity futures, representing a nominal value of $125 billion, says an industry expert.
Copper has been wrapped into a larger reflationary trade which leaves it exposed to broader market turbulence such as a sell-off in global equity markets.
Macro Tides Monthly Report 03 January 2021
Economists are forecasting a strong rebound in 2021 especially in the second half of the year. By the end of 2021 economists expect S&P 500 earnings to climb to $170.00 from $140.00 in 2020 and $161.00 in 2019. Much of this forecast is dependent on the speed of vaccinations and how quickly the American consumer can return to their ‘normal’ spending habits. With the S&P 500 trading above 3700, it is sporting a forward P/E of 22.00 which is the second most expensive level since 1929. Investors are completely onboard assuming that vaccinations will proceed without any meaningful issues and herd immunity will be achieved by mid-year. The stock market is priced for perfection, just as the country may be entering a Perfect COVID-19 Storm in January that may extend well into February.