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  • Hello and welcome back to the note.

  • We have had a very dramatic round of rebounds in world stock markets.

  • They started in Asia. Strong rebounds also in Europe, and here in the US.

  • The question is exactly what has driven it?

  • As you can see, the S&P 500 is now right back at the top of its range

  • since that dramatic correction in August. It hasn't broken through that range but it's right at the close of it.

  • You'll notice also that it never got below the level from the last very aggressive correction back in October of last year,

  • widely referred to as the bonds flash crash.

  • Now, what has been driving this?

  • Obviously, we had non-farm payrolls data on Friday, which was very disappointing.

  • Initially you saw a selloff and then you saw a rebound.

  • The most natural explanation would be that in this case bad news is good news, because it means that rates stay lower for longer.

  • However, various other asset classes don't fit with that.

  • We've seen bond yields rise today, not what happens if you think rates are staying lower for longer.

  • Commodities really haven't done very much, maybe up very slightly today, but not an impressive clear cut picture.

  • Then we get to the dollar, which should logically be weakened if people think that the Fed

  • really isn't gonna be raising rates any earlier than anybody else.

  • If we take a look at this next chart, you can see that actually the dollar hasn't done anything at all much against its major trading partners,

  • that's the US dollar index in blue. There includes currencies like the euro and the yuan.

  • Where you do see quite a dramatic rebound in the last few days is in emerging markets, foreign exchange,

  • at noticeably the the Brazilian Real and the South African Rand.

  • Those currencies had obviously been sold off very aggressively.

  • There was a suggestion that even if the news is very bad for emerging markets,

  • which it is, that sell off has gone too far and we've seen a very strong rebound from there.

  • This could simply be a response to oversold conditions and valuation.

  • Now you get a similar picture if you take a look at the guts of what has happened in the U.S. equity markets.

  • As we can see from the next chart. What we're looking at here are the two best-performing stocks today in the S&P 500,

  • which are Alcoa, the aluminum producer and Micron Technologies, which makes semiconductors.

  • Both very very cyclical stocks, very prone to the industrial, the global industrial cycle.

  • And both had done really really terribly for the year so far.

  • Now in the case of Micron, what is even more intriguing is that they have been spurred

  • by their latest earnings announcements, which came out after the market on Thursday.

  • Which was bad and disappointing and involves talking down estimates for the future,

  • but didn't talk down estimates quite as much as some brokers had feared.

  • The fact that you got that kind of a rebound from what was essentially a very bad, very negative earnings reports,

  • suggests that some of the fear that has been written into earnings forecast has been overdone

  • and that you could, we could indeed be primed to see quite a rebound

  • without that much in the way of good news from the earnings season once it gets underway.

  • When it comes to Alcoa of course they will be the first company to report later this week starting off that earnings season.

  • I do think the third-quarter earnings season really is now critical, if we want to see the S&P break up out of its range

  • that will require some reasonably good numbers from the earnings season.

  • It's still possible if companies choose to kitchen sink through lots of the bad data into their numbers

  • and to guide down when it's still possible that will take us back down again.

  • The bottom line is that earnings season really matters.

Hello and welcome back to the note.

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最弱Iオーサーズノートの復活 (Revival of the weakest I Authers' Note)

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    Ray Du に公開 2021 年 01 月 14 日
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