Market Recap

Market Recap – 09/09/2018


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As September kicks off, we are dealing with the same debates and challenges facing the markets as when summer started. Looking at US, it is becoming more popular the “bearish idea” in which EPS is slowing, margins are contracting, higher rates are dampening growth, emerging markets difficulties will affect developed countries and trade war will have an impact on corporate profits. This view has practically become consensus and many argue that this could inevitably lead to the US markets rolling over.

It is also true that global markets have seen multiple contraction already and many investors think that they are discounting many challenges, especially in the US. The economic environment still seems favourable with corporate revenues showing strenght (with double digit growth in the US), positive EPS revisions and an incremental corporate activity with M&A and buybacks.

The debate between the negative and the positive view is still alive and we had a proof of that on Friday, when we had good NFP (Non Farm Payroll) numbers and negative headlines hitting the tape on trade and tariffs.

In the US last week was very busy and negative, especially for the NDX down more tran 3%. It is also important to highlight that this week was a really bad one for momentum strategies which suffered  a sector rotation from growth to value companies.

The S&P is only down 1% on the week because Tech was the biggest drag on the index’s performance like in Europe. It is worth to highlight the very negative performance of internet/social stocks with FB down 8%, Snapchat down 8% and Twitter down 13%. On the other hand Staples and Industrial have been the biggest positive contributors. This is a clear evidence of the sector rotation from growth/tech stocks to more defensive/late-cycle stocks. Also semiconductors suffered a negative week with Micron down 14%, LAM research down 8% and Applied Materials down 7%.

Andrew Sheets, Equity Strategist at Morgan Stanley, suggests Europe as the best region where to stay invested. Infact what makes Europe so interesting is that Macro data are in good shape, earnings are growing at an interesting pace (expect 8/10% growth) and broad valuations are still resonable.

Looking at Global Markets the most evident risk comes from Emerging Markets, especially in the Latin-America region, given the highly uncertain Brazilian elections. Looking to Asia, fears come from trade tensions, especially after Trump announced another $267 billion in tariffs on China in additional to the previous $200 billion.