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Monday, 23 August 2021

Are US equities in for a slump when Fed unwinds stimulus?

US investors and stocks: hang on tight and don’t let go. Expectations are for a bumpier ride in US equities as growth slows, the delta variant spreads, and the Federal Reserve seems to be preparing to taper stimulus measures, according to Reuters. Analysts say that Wall Street may be turning cautious as summer fades, even while US stocks maintain near-record highs.

Some are starting to lower growth forecasts due to the impact of delta. Goldman Sachs, for example, has revised down its third-quarter forecast from 9% to 5.5%, citing delta’s impact. Bank of America research shows that funds are holding the most cash since October 2020 and are shifting into defensive sectors. And even Robinhood retail traders, who always believe the hype, are looking to cool their boots.

Valuations are stretched: After being resuscitated from the covid crash by emergency stimulus measures last year, stocks have skyrocketed, continuously notching new record highs since late last year. But with the S&P 500’s P/E ratio now at a 34% premium to the 20-year average, investors are beginning to pay closer attention to valuations.

And investors are still fretting about how the Fed will unwind its stimulus: "We got such tremendous Federal Reserve monetary support for the economy for some time, so the market has trepidation about the Fed taper and what that is going to do for growth," said one strategist. The central bank is still buying USD 120 bn of treasuries each month, and interest rates remain close to zero.

Down

EGX30

10,690

-1.1% (YTD: -1.4%)

None

USD (CBE)

Buy 15.65

Sell 15.75

None

USD at CIB

Buy 15.65

Sell 15.75

None

Interest rates CBE

8.25% deposit

9.25% lending

Down

Tadawul

11,076

-1.1% (YTD: +27.5%)

Up

ADX

7,679

+0.8% (YTD: +52.2%)

Up

DFM

2,866

+1.0% (YTD: +15.1%)

Up

S&P 500

4,441

+0.8% (YTD: +18.3%)

Up

FTSE 100

7,087

+0.4% (YTD: +9.7%)

Down

Brent crude

USD 65.18

-1.9%

Up

Natural gas (Nymex)

USD 3.85

+0.6%

Up

Gold

USD 1,784.00

+0.1%

None

BTC

USD 48,723.73

-% (as of midnight)

THE CLOSING BELL-

The EGX30 fell 1.1% at today’s close on turnover of EGP 1.53 bn (9.5% above the 90-day average). Foreign investors were net sellers. The index is down 1.4% YTD.

In the green: CIRA (+4.0%), GB Auto (+1.0%) and MOPCO (+0.1%).

In the red: Fawry (-3.4%), Ibnsina Pharma (-3.0%) and AMOC (-2.5%).

Asian shares are handily in the green and futures suggest its going to be a good day for stockholders across Europe, on Wall Street and on Bay Street.

Enterprise is a daily publication of Enterprise Ventures LLC, an Egyptian limited liability company (commercial register 83594), and a subsidiary of Inktank Communications. Summaries are intended for guidance only and are provided on an as-is basis; kindly refer to the source article in its original language prior to undertaking any action. Neither Enterprise Ventures nor its staff assume any responsibility or liability for the accuracy of the information contained in this publication, whether in the form of summaries or analysis. © 2021 Enterprise Ventures LLC.

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