Those who ascribe to ‘sell in May and go away’ would have avoided one of the two times this year where the S&P 500 declined more than five percent in single week (the other instance occurred in late January). Many thought that U.S. inflation expectations peaked in March this year as April numbers saw a decline across both headline and core CPI.  However, headline CPI reached another new high in May rising 8.6% year-over-year, a 40-year high as shown in Exhibit 1.  Core CPI also remained stubborn on a month-over-month basis as it rose 0.6% showing no decline from April.

The “Three Amigos Summit” on Nov. 18 in Washington D.C. appeared to reinforce President Joe Biden’s shift towards Trumpian protectionism. Biden refused to budge from his position of using tax credits to support domestic production of electrical vehicles, potentially damaging over 50 years of voluntary cooperation and trade integration between U.S. and Canadian firms in the automotive sector. On Nov. 24, the U.S. Department of Commerce stated it will impose duties of 17.9% on imported softwood lumber from Canada, which is twice the previous rate of 8.99%. This shift towards protectionism should be of grave concern for investors as less-open

Investors are becoming increasingly bullish on the long-term Greek outlook, with yields of Greek ten-year bonds now broadly in line with those of their Italian counterparts. In total, Greek yields have fallen by just under 300 basis points since the start of the year, while the spread has fallen by 1.6 percentage points. Refresh the chart in your browser | Edit the chart in Datastream The more bullish stance reflects investors reassessing the level of risk associated with the euro area’s most indebted sovereign, brought about by the remarkable turnaround in the Greek fiscal position since the crisis. Indeed, while Greece ran

The S&P 500’s 12 month forward (12M FWD) P/E, shown in orange, tends to follow the U.S. 2 year treasury government benchmark yield (2Y), shown in yellow. However, since hitting 14.3 on Dec. 28, 2018, the FWD 12M P/E ratio has increased to 17.2 while the 2Y has come down to 1.64% from 2.54%. This is largely due to multiple expansion, which may be concerning for some, given that year-over-year (YoY) S&P 500 12M FWD EPS has flattened out. Quarterly average YoY returns for the S&P 500, shown in blue, tend to trend in the direction of quarterly average YoY

The US unemployment rate dropped to 4.3% in May, a level not seen since the height of the dot-com bubble almost twenty years ago. Conventional economic thought, characterized by the “Philips Curve”, posits a fundamental trade-off between unemployment and inflation. Low unemployment should put upward pressure on wages and production costs leading to higher inflation. It is tempting to say “this time is different” and the market seems to be drifting into this mode. As shown below, CPI inflation has trended higher since 2015 and began 2017 at a 5-year high. Inflation has since moderated – largely reflecting softer oil

U.S. equity investors are behaving as if it were the best of times, pushing stock indexes to new highs. Bond investors seem to believe a different tale, driving yields sharply lower even as a new Federal Reserve interest-rate hike looms. Yields rose in tandem with equities in November and December, reflecting a shared hope that President-elect Donald Trump would juice growth and inflation with tax cuts, deregulation and infrastructure spending. The narrative has changed, though, as Trump’s stumbling effort to repeal his predecessor’s healthcare law and investigations into his campaign’s links with Russia have stymied his agenda. Since peaking at

China’s trust industry could use a little sunlight. The first stock market listing in 20 years is up in the air, after Shandong International Trust missed a regulatory deadline in Hong Kong. This is a pity. The initial public offering would have helped investors and regulators decipher the high-yielding trust products at the core of China’s intricate shadow-banking industry. In October, the state-controlled company filed for a Hong Kong listing, targeting $300 million. The IPO looked set for a smooth ride after China’s securities watchdog gave the deal its blessing in February. But the application has now lapsed, indicating the

The bond market reacted to Donald Trump’s election win: ten-year treasury yields rose from 1.86% on Nov. 8, Election Day, to 2.37% on Nov. 25.