How to look markets when extreme greed? (Macro Update)

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How to look markets when extreme greed? (Macro Update)

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In this article you’ll find:

🎯 What the markets are looking for? – Goldman Sachs 👇

  • RISK ASSETS WERE BOOSTED BY SOFT-LANDING OPTIMISM
  • RATES PULLED BACK
  • LINGERING WORRIES HAD LIMITED MARKET IMPLICATIONS

🎯 What really matters? – Blackrock 👇

  • CURRENT MACRO REGIME
  • WHAT IS THE MARKET SENTIMENT
  • WHAT REALLY MATTERS?

Here you can find other Macro articles:

  1. Reasons why the FED may disappointing rate cuts Markets Expect
  2. How to view the US Inflation regime in 2024 (Macro Update)
  3. Clear Market Expectations trends in 2024 (Macro Update)

ENJOY THE MACRO ARTICLE

Macro Update

🎯 What the markets are looking for? – Goldman Sachs 👇

  1. Macro Update, the FED will begin cutting rates in May for Goldman Sachs. If the labor market continues to show strength, as observed in the January jobs report, the FED may hold off on rate cuts until the summer.

RISK ASSETS WERE BOOSTED BY SOFT-LANDING OPTIMISM

Macro Update

  1. Solid US GDP, ongoing strength in the US labor market, and rising US consumer sentiment as reflected by the University of Michigan consumer index rising to its highest level since July 2021, reinforced expectations for a US soft-landing and boosted risk assets.
  2. Looking ahead fourth quarter corporate earnings releases will tell us how to assess corporate financial health.
  3. Goldman continues to believe that many companies have the financial flexibility to navigate a higher rate regime.

RATES PULLED BACK (Macro Update)

Macro Update

  1. Sovereign bond yields have fluctuated, and market expectations for the start of rate-cutting cycles have shifted beyond March.
  2. However, policy rates are still anticipated to end the year lower.
  3. Investors should secure attractive yields on high-quality assets such as securitized credit, given their favorable valuations and carry.
  4. These assets are also poised to benefit from rate relief this year.

LINGERING WORRIES HAD LIMITED MARKET IMPLICATIONS

Macro Update

  1. Concerns such as geopolitical instability in the Middle East and China’s weak economic recovery have had limited impact on markets beyond the affected regions.
  2. Shipping costs from disruptions in the Red Sea presents only moderate upside risks to inflation.
  3. Potential economic and market risks are arising from increased political uncertainties.

Macro Update

🎯 What really matters on markets? – Blackrock 👇

CURRENT MACRO REGIME (Macro Update)

Macro Update

  1. We’re in a new regime of greater macro and market volatility, and that’s reflected in corporate profit margins on markets.
  2. S&P 500 net profit margins expanded to all-time highs during the pandemic as firms passed on higher costs to consumers.
  3. The reversal of pandemic spending patterns and solid wage growth have pushed margins down from a peak of roughly 13%.
  4. Still, margins have held up better than Blackrock expected against these pressures and higher interest rates on markets.

WHAT IS THE MARKET SENTIMENT

Macro Update

  1. Market sentiment on stocks is anchored on the outlook for policy rates and inflation.
  2. Stocks rebounded quickly from mixed tech earnings earlier last week and after Fed Chair Jerome Powell ruled out a rate cut as soon as March.
  3. The Fed is watching for inflation to fall sustainability to 2%.

WHAT REALLY MATTERS? (Macro Update)

Macro Update

  1. What really matters is when the Fed will start to cut rates as that scenario plays out.
  2. BlackRock believes the rally will be upset by resurgent inflation coming into view later this year and margins facing pressure.
  3. Still-high wage growth is one key factor that will put inflation on a rollercoaster toward 3% in 2025.
  4. That will likely renew cost pressures on companies. They continue to watch for wages growing faster than the prices received by good producers to gauge margin pressures.

Join the conversation with your own take on these topics in the comments below.

About the Author

Alessandro is a Professional Financial Markets researcher and he loves to share with you the most interesting charts and comments.

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