News and events

05.22.2024

TOO EARLY TO GIVE UP

We remain slightly LONG tactically. Although the market has already reached our full-year target range for 2024 , riding the momentum continues to be our favorite short-term trade.

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We remain slightly LONG tactically in this phase of market rebound despite both US ISM Manufacturing and ISM Services turned back below 50, the fatidic threshold historically pointing to a likely economic slowdown.
Our analysis suggests that the actual story is more complex, and an ISM Services below 50 is not necessarily detrimental for equities.

Since 2000, we register six episodes when ISM Services printed below 50 for the first time , and only half of the times, the US economy was already or went into recession (Figure 3). The rest of the time, it was just a blip, that did not negatively affect the stock market. On average, the S&P 500 rallied by 3.5pp in the following 2 months, and up to 7pp if we exclude the recessionary episodes (Figure 4). This study highlights, once again, that a recession is the needed condition to trigger a proper Bear Market. The reason of such equities’ resilience was mostly owing to the earnings that kept growing also following the ISM contraction (Figure 5).

Based on our current macro baseline, we still foresee US EPS to rise by 10pp in 2024. So, the earnings support is here to stay, plus equity may benefit by the expected ongoing dovish repricing of FFR by year end. Historically weakening ISM happened along with decreasing expectation of Fed Fund Rate. Since 2022, when the rates’ normalization began, ISMs softened but rates expectations kept grinding higher (Figure 6). Both ISMs below 50 points may prove to be the turning point for rates too. That said, rising EPSs along with more benign rates expectations will push equities even higher from current level until recession shadows won’t be darker. Those days don’t seem to be close.

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Cosimo Recchia

Senior Rates Strategist
Investment Research

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Chosen for you

05.02.2024

STILL LONG DESPITE RISING VOL

We remain slightly LONG tactically. We believe that the recent increase in volatility is mostly due to rising geopolitical tensions in the Middle East and FFR repricing rather than weakening earning expectations.
03.22.2024

SLIGHTLY LONG TACTICALLY

Risk management considerations suggest it’s better riding the current positive market momentum.