When it comes to what’s rallied the most from the March pandemic panic lows, it’s probably not what you think.
As it turns out, one of the leaders globally is the Japanese Mothers index. That is not an index based on the average performance of stock-picking housewives in Japan. Rather, it’s a gauge of local “emerging” companies with high-growth potential.
From the trough in late March, the index has outpaced pretty much whatever benchmark you care to cite.
Mothers is “rarely mentioned in the press which is a shame given the efforts the acronym builders at the TSE went to create it”, SocGen’s Andrew Lathorne quips, in a truly hilarious short take on the global equity surge off the COVID nadir.
“It’s has been catching a few headlines recently as it’s up 80% from the trough!”, he goes on to exclaim, adding that he only highlights it “as symptomatic of a euphoric stock market, as long-term it has been a poor way to make returns”.
The latest “symptom” of the equity euphoria is the undaunted character of US shares in the face of both renewed China tensions and domestic unrest across America’s largest cities, where protests entered their eighth day Tuesday.
Let me pause a moment to remind readers that while “renewed tensions with China” is something of a generic “blah” phrase by now given that it served as an all-purpose narrative for explaining every move lower in 2018/2019, it means something more in 2020. Tensions between Beijing and Washington aren’t just “running high”, they are comically inflamed.
When it comes to societal discord and the prospect of martial law in the US, the somnolence at the benchmark level on some simple metrics is quite something.
“I’ve seen SPY volume defy news flow many times over the years, but [Monday] may take the cake with a sleepy $17 billion traded, the lowest since pre-COVID and way below its averages”, Bloomberg’s ETF maven Eric Balchunas remarked on Tuesday.
“The Fed’s kitchen sink was like a giant painkiller for the market”, Balchunas went on to say, adding that “I also think people believe the reopening will happen faster than pundits predicted and don’t think the riots/unrest [will] get in the way of that”.
Amusingly, volatility at the factor level has exploded. The pro-cyclical shift that played out to dramatic effect last week drove five-day realized on Nomura’s EBITDA/EV factor to 119, for example.
The irony there is that the same reopening optimism that’s keeping investors bullish is behind the Value/Growth rebalancing (i.e., the good mood which is helping benchmarks grind higher in sleepy fashion is behind explosive “under-the-hood” action in equities).
In any event, time will tell whether the protests “matter” for the market, and as noted here on several occasions over the weekend, they would need to last considerably longer to have a “real” macro impact, even as the impact on individual businesses is being felt very acutely across the nation.
That said, when you see large retailers like Target closing the doors in multiple cities, it’s a reminder that while the character of the unrest isn’t unprecedented in the US, the scope is, or at least in terms of how many metropolitan areas are involved.
Read more: Cultural Breaking Point Threatens To Upend Fragile US Economy At Worst Possible Time
Meanwhile, consensus continues to take a generally sanguine view of things.
“Looking for evidence of support — beyond monetary and fiscal measures – consensus forecasts do envisage a strong V-shaped view and if it is business as usual in just a few quarters’ time then why not invest at the discounted prices of a few weeks ago?”, SocGen’s Lapthorne writes, effectively playing Devil’s advocate (he’s not generally one to buy into overly-rosy narratives).
He continues, noting that “the S&P 500 quarterly earnings profile envisages growth of 57% from Q2 to Q4 and the Nasdaq is expected to see net income almost double by the end of the year from the Q2 quarterly low”.
Analysts now see global earnings just 5% lower in 2021 versus end-2019.
