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Futures Slide As Amazon, Apple Slump; Nasdaq Set For Worst Month Since Nov 2008

Futures Slide As Amazon, Apple Slump; Nasdaq Set For Worst Month Since Nov 2008

It has been an illiquid, rollercoaster session on the last…

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Futures Slide As Amazon, Apple Slump; Nasdaq Set For Worst Month Since Nov 2008

It has been an illiquid, rollercoaster session on the last day of the week and month, which first saw US index futures modestly rise alongside European stocks propped up by surging Chinese and Asian markets following Beijing's latest vow to use new tools and policies to spur growth, however the initial move higher quickly faded as markets remembered that not only did Amazon report dismal earnings (with Apple also sliding on weak guidance) but the Fed is set to hike 50bps (or maybe 75bps) next week, and put a lit on any upside follow through. As a result, S&P500 futures dropped 0.9%, while Nasdaq futures retreated 1.1% on the last trading day of April, adding to their 9.3% decline so far this month and on pace for the worst monthly performance since November 2008 as fears of rising rates hurt bubbly growth shares and fuel risks for future profits. The yen snapped a slide while staying near 20-year lows. The yuan, euro, pound and commodity-linked currencies made gains while the dollar dipped. 10Y TSY yields rose, rising by about 4bps to 2.87% while gold moved back above $1900. Bitcoin tumbled as usual, and last traded back under $39,000.

In premarket trading, Amazon.com plunged 9%, after projecting dismal second-quarter sales growth, while the world's largest company Apple dropped 2.8% after warning on supply constraints. Tesla shares gained 4.2% premarket after CEO Elon Musk said he doesn’t plan on selling any more stock after a $4 billion stake sale. Twitter shares also rebounded from yesterday's selloff as a Musk takeover now looks much more likely. Here are some other notable premarket movers:

  • Intel (INTC US) shares slide 3.1% premarket as analysts flag “light” guidance for the chipmaker’s second quarter, stoking worries over the impact of waning demand for PCs. Intel’s second-quarter forecast missed the average estimate.
  • Robinhood (HOOD US) shares are set to open at a record low Friday as a lockdown-driven boom in retail trading continues to fade and a stock market selloff squeezes out some clients.
  • Tesla (TSLA US) shares rise as much as 4.2% premarket, after CEO Elon Musk said he doesn’t plan on offloading any more Tesla stock after selling ~$4b of shares in the electric vehicle maker following his deal to buy Twitter.
  • Accolade (ACCD US) plummets 36% premarket after the company’s 2023 revenue forecast fell short of estimates, with Morgan Stanley downgrading the healthcare software provider to equal-weight after the loss of a key customer.
  • Finch Therapeutics (FNCH US) shares soar as much as 54% premarket after the biotech announced that the FDA removed the clinical hold on Finch’s investigational new drug application for CP101.
  • Piper Sandler cut its recommendation on Mastercard (MA US) to underweight, becoming the first broker to downgrade the company with a sell-equivalent rating since August. Shares down 1.1% premarket.
  • U.S.-listed Chinese stocks rally across the board in premarket trading after China’s top leaders pledged more support to spur economic growth and vowed to contain Covid outbreaks. Alibaba (BABA US) +13%, JD.com (JD US) +16%.
  • Zymeworks (ZYME US) climbs 30% premarket; All Blue Capital made a non-binding offer at $10.50 per share in cash for the biotech company, Reuters reports, citing people familiar with the matter.

Outside of the flagship tech giant earnings misses, the results season has been reassuring so far. S&P 500 earnings growth is tracking 4.3% year-on-year, with 86% of companies beating estimates, according to Barclays strategists. “With continued solid U.S. growth prospects, robust earnings, and relatively strong household balance sheets, a recession in the next 12 months is not in our base case,” said UBS Wealth Management CIO Mark Haefele. 

Meanwhile, as reported earlier, China’s top leaders promised to boost economic stimulus to spur growth.  While China’s announcement brought some relief for markets, many risks remain. They span China’s ongoing Covid challenges, the impact of the Fed on the U.S. economy and Russia’s war in Ukraine.

“The Fed’s record on soft landings is not that strong,” Carol Schleif, deputy chief investment officer at BMO Family Office LLC, said on Bloomberg Television. “Markets are watching very, very carefully to see if we can thread that needle.”

The latest U.S. data showed that the world’s largest economy unexpectedly shrank for the first time since 2020. That reflected an import surge tied to solid consumer demand, suggesting growth will return imminently.  The figures underscore the debate about how much scope the U.S. central bank has to tighten policy before the economy cracks. Markets continue to project a half-point Fed rate hike next week.

“A year from now, 10-year yields are most likely going to be lower than where we are today,” Jimmy Chang, chief investment officer at Rockefeller Financial LLC, said on Bloomberg Television, referring to Treasuries. “I do believe at some point the economy starts to weaken, the Fed will be less hawkish, perhaps even go into a pause mode by, say, early next year.”

Meanwhile, China's latest vow to prop up markets helped support European stocks (in addition to Asian and Chinese stocks of course), also spurred by a robust earnings season. The Stoxx Europe 600 Index climbed 0.8%, trimming a monthly decline. The Euro Stoxx 50 gains as much as 1.5% with most cash equity indexes gaining over 1% before stalling. Tech, consumer products and financial services are the strongest performing sectors. Here are some of the biggest European movers today:

  • Novo Nordisk shares gain as much as 7.3% after the Danish pharmaceutical giant reported its latest earnings, which included a large beat on its blockbuster obesity drug Wegovy. The company also hiked its outlook.
  • BBVA rises as much as 5.6% after better-than-expected first-quarter earnings, as the Spanish lender’s performance in Turkey showed signs of vindicating Chief Executive Officer Onur Genc’s bet on the country.
  • Johnson Matthey jumps as much as 36%, the steepest gain since at least 1989 when Bloomberg’s records started, after Standard Industries Inc. bought a stake in the company.
  • Remy Cointreau climbs as much as 3.8% after the French distiller reported 4Q sales that were in line with consensus. Analysts noted the strong start to the current fiscal year and a limited impact so far from a Covid-19 resurgence in the key Chinese market.
  • Spie shares climb as much as 5.1% after the French company reported 1Q figures that Bryan Garnier said were “substantially” above expectations, with planned European investments for energy independence also viewed as a potential headwind.
  • AstraZeneca shares decline as much as 1.3% after the company’s first-quarter earnings included a beat on core EPS and overall revenue, but also a slight miss on Alexion rare disease medication and key growth drugs such as Imfinzi.
  • Neste falls as much as 8.7% even as the Finnish maker of renewable diesel reported first-quarter results that beat estimates. Jefferies (hold) said the lack of longer-term (full-year 2022) margin guidance could disappoint.
  • Henkel tumbles as much as 10% after what RBC says was a “substantial profit warning” for 2022.
  • NatWest falls as much as 6% after its 1Q results got a mixed response from analysts. Some were impressed with the performance of the bank’s Go-Forward business, while others highlighted the very low mortgage spread and miss in the CET1 capital ratio.
  • Orsted drop as much as 3.2% despite reporting a 1Q profit beat, with analysts focusing on the project delays due to supply chain shortages as well as the impact of high input costs.

Earlier in the session, Asian stocks climbed for a second day led by a jump in Chinese technology shares, amid a series of new policy promises from the country’s top leaders to bolster the economy and markets.  The MSCI Asia Pacific Index advanced as much as 1.7%, with Tencent and Alibaba among the biggest gainers. The Hang Seng Tech Index soared more than 10%, rebounding from earlier losses, as the country vowed to support healthy growth of platform companies. As reported earlier, China’s Politburo, led by President Xi Jinping, vowed to meet economic targets in a sign that it may step up stimulus to support growth. Shortly before the measures were unveiled, Chinese tech stocks reversed earlier losses as traders speculated about a possible relaxation of the yearlong regulatory clampdown. Chipmakers in Taiwan and South Korea also climbed, helping the region’s tech sector. A Bloomberg index of Asian semiconductor stocks rallied as much as 2.4%, its biggest gain in more than two weeks. A key technical indicator suggested that the sector is still oversold after Intel’s disappointing profit forecast.

“After recent selloffs in the semiconductor sector, the price levels have become attractive for dip buyers,” said Seo Jung-Hun, a strategist at Samsung Securities, adding that the rebound may be limited ahead of the U.S. Federal Reserve meeting next week.   Stocks in South Korea, Taiwan and Australia advanced while those in Japan were closed for a holiday. Asia’s equity benchmark was still poised for its steepest monthly drop since March 2020 and its fourth monthly decline.

Australian stocks also advanced, paring the week's decline. The S&P/ASX 200 index rose 1.1% to 7,435.00, paring the week’s loss. Technology and communications sectors gained the most Friday. Pointsbet gained the most in almost a month, snapping a five day losing streak after reporting turnover for the third quarter. Domino’s Pizza fell for a fourth day, dropping the most in a month. New Zealand, the S&P/NZX 50 index was little changed at 11,884.30.

India’s benchmark equities index completed a third monthly slide this year as higher oil prices weighed on sentiment.  The S&P BSE Sensex fell 0.8% to 57,060.87 in Mumbai on Friday, taking its loss in April to 2.6%. Axis Bank Ltd. dropped 6.6% after reporting earnings and was the biggest drag on the Sensex, which saw 23 of 30 member-stocks fall. The NSE Nifty 50 Index also slipped 0.8% to 17,102.55. All 19 sectoral sub-indexes compiled by BSE Ltd. slipped, led by a gauge of oil and gas companies.  “We’ve been seeing the index oscillating in a broader range for the last two weeks and there’s no clarity over the next directional move yet,” Ajit Mishra, vice president for research at Religare Broking Ltd., wrote in a note.  The brokerage maintains a cautious view, with focus on earnings, auto sales data and the initial share sale of Life Insurance Corporation next week.  Of the 15 Nifty 50 firms that have announced earnings results so far, 10 either met or exceeded analysts’ expectations, while five missed. 

In FX, the Bloomberg Dollar Spot Index fell after touching an almost two-year high yesterday as the greenback weakened against all of its Group-of-10 peers. Treasuries underperformed European bonds, with 3-year yields rising by 7bps. Scandinavian currencies were the top performers as they were supported by month-end flows. The Australian dollar extended intra-day gains after China’s top leaders promised to boost economic stimulus to spur growth and vowed to contain the country’s worst Covid outbreak since 2020, which is threatening official targets for this year. The euro snapped six days of losses against the dollar but was still set for its worst monthly performance in almost four years. Bunds extended losses and yields rose by up to 5 bps after data showed euro-area consumer prices rose by 7.5% from a year earlier in April, in line with the median estimate in a Bloomberg survey. A gauge excluding volatile items such as food and energy jumped to 3.5%. The pound advanced against the dollar, trimming a weekly decline of 2.2%. The cost of hedging against swings in the pound over a one-week period rose to the highest since December 2020. Gilts outperformed bunds and Treasuries, as money markets pared BOE tightening wagers. The yen rose on demand over the currency fix in Tokyo but it remains on track for its worst monthly performance since 2016

In rates, Treasuries hold losses into the U.S. session leaving yields down by as much as 6bps across front-end as the curve flattens. 10-year TSY yields were around 2.86%, cheaper by 4bp vs. Thursday close while 2s10s, 5s30s spreads flatten 2bp and 2.5bp amid front-end and belly-led weakness. German short-end cheapens roughly 5 bps to 0.24% as euro-area core inflation accelerated higher than expected. In Europe, peripherals underperform and lead bond losses while Estoxx50 climbs following better sentiment across Asia stocks after China’s pledge to ramp up stimulus.  Dollar issuance slate empty so far; two names priced $4.5b Thursday, taking weekly volumes through $8b vs. $20b forecast. Expectations are for $20b to $25b next week and a total of $125b to $150b for the month of May

In commodities, WTI rose 1.2% higher to trade near $107. Saudi Aramco is expected to lower its official selling prices for June-loading crudes, market sources told S&P Global Commodity Insights; following tepid Asian demand fundamentals, with the OSP differentials retreating from the record highs. North Sea Crude oil grades underpinning dated Brent Benchmark to average 540k BPD in June (prev. 755k BPD), according to programmes. Indian firms are reportedly seeking oil import deals with Russia, according to sources cited by Reuters; three refiners looking to buy up to 16mln bbl per month of oil from Russia. Spot gold rises roughly $20 to trade around $1,915/oz. Most base metals trade in the green.

Bitcoin prices are softer as usual and briefly retreated beneath the 39,000 level.

Looking at the day ahead now, and data releases include the flash CPI estimate for the Euro Area in April, as well as the first look at Q1 GDP for the Euro Area, Germany, France and Italy. Otherwise from the US, we’ll get March’s data on personal spending and personal income, the Q1 employment cost index, the NI Chicago PMI for April, and the University of Michigan’s final consumer sentiment index for April. From central banks, we’ll hear from the ECB’s de Cos, and the Central Bank of Russia will be making its latest policy decision. Finally, earnings releases include ExxonMobil, Chevron, AbbVie, Bristol-Myers Squibb, Honeywell International, Charter Communications, Aon and NatWest.

Market Snapshot

  • S&P 500 futures down 0.9% to 4,242.00
  • STOXX Europe 600 up 1.0% to 451.55
  • MXAP up 2.0% to 169.00
  • MXAPJ up 2.6% to 561.33
  • Nikkei up 1.7% to 26,847.90
  • Topix up 2.1% to 1,899.62
  • Hang Seng Index up 4.0% to 21,089.39
  • Shanghai Composite up 2.4% to 3,047.06
  • Sensex up 0.5% to 57,796.94
  • Australia S&P/ASX 200 up 1.1% to 7,435.01
  • Kospi up 1.0% to 2,695.05
  • German 10Y yield little changed at 0.88%
  • Euro up 0.7% to $1.0574
  • Brent Futures up 0.9% to $108.51/bbl
  • Brent Futures up 0.9% to $108.51/bbl
  • Gold spot up 1.1% to $1,915.10
  • U.S. Dollar Index down 0.66% to 102.94

Top Overnight News from Bloomberg

  • More than six years after China’s shock 2015 devaluation roiled global markets and spurred an estimated $1 trillion in capital flight, the yuan is weakening at a similar pace. Onshore it’s lost nearly 4% in eight days, while the offshore rate is heading for its worst month relative to the greenback in history. Selling momentum is the strongest since the height of Donald Trump’s trade war in 2018
  • Geopolitical turmoil is reviving the dollar’s status as a haven, extending gains seen earlier this year as traders shifted to the U.S. to seize on rising interest rates from the Federal Reserve. On Thursday, one gauge of the greenback pushed through to the strongest level since 2002, swept up by a wave of demand for the world’s reserve currency
  • Russia’s war with Ukraine may persuade the Swiss National Bank to adjust its monetary policy if inflation accelerates, SNB President Thomas Jordan said
  • Economic expansion in the euro zone began 2022 on a weak footing -- underscoring the damage from soaring energy costs and worsening supply snarls following Russia’s invasion of Ukraine. Output increased 0.2% from the previous quarter in the three months through March -- matching the median estimate in a Bloomberg survey
  • U.K. house prices rose for a ninth consecutive month in April as the housing market continued to defy an escalating cost of living crisis. The 0.3% gain marked the longest winning streak since 2016
  • Oil is poised for a fifth monthly gain after another tumultuous period of trading that saw prices whipsawed by the fallout from Russia’s war in Ukraine and the resurgence of Covid-19 in China

A More detailed look at global markets courtesy of Newsquawk

APAC stocks gained after the firm lead from the US where stocks looked past the surprise contraction in US GDP, but with advances in the region capped heading into month-end and next week's mass closures. ASX 200 was firmer as tech mirrored the outperformance of the Nasdaq stateside and with gold miners following closely behind after the precious metal reclaimed the psychological USD 1900/oz level. Hang Seng and Shanghai Comp were initially indecisive ahead of next week’s holiday closures including in the mainland where markets will remain closed through to Wednesday, while participants also digested the surprise contraction in Hong Kong’s exports and imports data. However, a surge in Hong Kong tech stocks and policy pledges by China's Politburo helped shake off the indecision.

Top Asian News

  • Bets of Easing Crackdown Spur Dizzying Jump in China Tech Stocks
  • Grab Gets Malaysia Digital Bank License as Five Bids Win
  • CATL Posts Sharp Drop in Earnings in Abrupt Reversal of Fortune
  • China Plans Symposium With Big Tech Firms After Labor Day: SCMP

European equities remained on the front foot on the last trading day of the month.   In terms of sectors, tech currently stands as the clear outperformer amid the sectoral gains on Wall Street yesterday alongside the surge in Chinese Tech. Overall, sectors have a slight anti-defensive bias. State-side futures were dented overnight amid after-hours losses in Amazon (-9% pre-market) and Apple (-2.4% pre-market) following disappointing guidance and inflationary headwinds. Thus, the NQ (-0.8%) currently lags.

Top European News

  • Russia Offers Dual-Payment Plan for Oil, Other Trade With India
  • Germany Says Won’t Block Embargo on Russian Oil to Punish Putin
  • UBS Wealth Says Too Early to Bet on Recession, Fed’s Failure
  • U.K. House Prices Deliver Longest Winning Streak Since 2016

FX

  • Dollar bulls book profits into month end and DXY pulls back further from near 104.000 peak in the process.
  • High betas, cyclical and activity currencies grab the chance to recoup losses vs Buck.
  • Euro rebounds amidst more hot Eurozone inflation data, but could be hampered by big option expiries.
  • Yuan regroups as Chinese Government promises stimulus measures and aid for sectors of the economy suffering worst covid contagion
  • Central Bank of Russia (CBR) cuts key rate by 300bps to 14.00% (exp. 15.00%); sees key rate in 12.5-14.00% range this year (prev. 9.0-11.0%).
  • Russia's Kremlin, when asked about the idea of pegging the RUB to gold prices, says it is under discussion, according to Reuters.

Fixed Income

  • Bonds suffer another inflation setback after early EU rebound.
  • Bunds some 100 ticks down from 154.69 peak, Gilts flattish between 119.34-118.73 parameters and 10 year T-note nearer 119-04+ low than 19-24 high.
  • BTPs weak after so-so reception at end of month Italian auctions - US PCE data also adds to caution as Fed's preferred measure of inflation.

Commodities

  • WTI and Brent front-month futures have been gaining during the European morning.
  • Saudi Aramco is expected to lower its official selling prices for June-loading crudes, market sources told S&P Global Commodity Insights; following tepid Asian demand fundamentals, with the OSP differentials retreating from the record highs. (S&PGlobal)
  • North Sea Crude oil grades underpinning dated Brent Benchmark to average 540k BPD in June (prev. 755k BPD), according to programmes.
  • Indian firms are reportedly seeking oil import deals with Russia, according to sources cited by Reuters; three refiners looking to buy up to 16mln bbl per month of oil from Russia.
  • Spot gold has been rising in tandem with a pullback in the Buck but ahead of the US March PCE metric.
  • Overnight, base metals saw gains in Shanghai, with some also citing a demand front-load ahead of the Chinese Labour Day.

US Event Calendar

  • 08:30: 1Q Employment Cost Index, est. 1.1%, prior 1.0%
  • 08:30: March Personal Income, est. 0.4%, prior 0.5%
    • March Personal Spending, est. 0.6%, prior 0.2%
    • March Real Personal Spending, est. -0.1%, prior -0.4%
    • March PCE Deflator MoM, est. 0.9%, prior 0.6%
    • March PCE Deflator YoY, est. 6.7%, prior 6.4%
    • March PCE Core Deflator MoM, est. 0.3%, prior 0.4%
    • March PCE Core Deflator YoY, est. 5.3%, prior 5.4%
  • 09:45: April MNI Chicago PMI, est. 62.0, prior 62.9
  • 10:00: April U. of Mich. Sentiment, est. 65.7, prior 65.7
    • U. of Mich. Expectations, est. 64.1, prior 64.1
    • U. of Mich. Current Conditions, est. 68.0, prior 68.1
    • U. of Mich. 1 Yr Inflation, est. 5.5%, prior 5.4%; 5-10 Yr Inflation, prior 3.0%

DB's Jim Reid concludes the overnight wrap

By the time you're reading this I'll be lying down with straps around my ankles and wrists and making strange noises while I get manipulated by someone very strict. No I'm not remaking "50 Shades" but instead starting "Reformer Pilates" for the first time at a very early physio appointment. The miracle worker of a back consultant that has for now cured my debilitating sciatica with one simple injection has recommended it as a way of preventing a relapse. At this point, I will do absolutely anything he says so I’m prepared to humiliate myself on a regular basis going forward. So feel free to picture this as you read this.

Some of the bearish chains have been loosened in risk markets over the last 24 hours but volatility remains elevated. We’ve seen another major European bond selloff, the highest German inflation since 1950, a further surge in the dollar, an unexpected US economic contraction in Q1, poor Amazon earnings, as well as growing geopolitical tensions as speculation continues about a Russian oil embargo in Europe. In spite of all that however, major equity indices have continued to advance from their Tuesday lows, with the S&P 500 (+2.47%) staging a huge comeback as investors focused on the more positive stories from recent corporate earnings releases.

This was before Amazon missed sales expectations after the bell and revised down sales expectations for the second-quarter, fueling fears that consumer spending may slow despite evidence of robust activity in yesterday's GDP data. Amazon shares were -9.15% lower after hours. However, Apple reported earnings that beat estimates on strong iPhone sales, despite supply chain issues coinciding with China’s lockdowns. Shares were -2.19% lower after hours. Overall sentiment still remains fragile with NASDAQ 100 futures (-1.04%) and S&P 500 futures (-0.43%) moving lower in the overnight trade.

This followed the best day for the S&P 500 (+2.47%) since the bounceback after the initial invasion in early March, with every sector more than +1.00% higher. Megacap tech stocks led the way as the FANG+ index rose +4.78%, its best day since mid-March. Europe also saw decent gains, although missing most of the rally that took place in the New York afternoon, with the STOXX 600 (+0.62%), the DAX (+1.35%) and the FTSE 100 (+1.13%) all higher. Given the big run-up in the New York afternoon, the S&P 500 was 'only' around +0.8% higher as Europe closed.

Bond markets were again lively with most of the action in Europe, with a significant selloff after the German CPI print for April surprised on the upside yet again. Looking at the details, the year-on-year measure rose to +7.8% using the EU-harmonised method (vs. +7.6% expected), which is certainly the fastest pace of inflation since German reunification, and at the same level briefly seen in West Germany after the first oil shock in 1973. Indeed if you’re looking for German inflation faster than that, you’ve got to go all the way back to the 1950s, since West Germany had much more success than the US or UK for example in keeping inflation in the single-digits even during the 1970s. We’ll have to see what the flash CPI reading for the entire Euro Area brings today, but as I mentioned in my Chart of the Day yesterday (link here), this brings home just how far the ECB is behind the curve, since the last time inflation was around these levels in the 70s, the Bundesbank certainly didn’t have a negative deposit rate.

With the inflation reading coming in above expectations, that catalysed a fresh bond selloff that took the 10yr bund yield up by +9.8bps to 0.89%. This echoes some of the other big moves higher in yields we’ve seen over the last couple of months, but it still leaves them beneath the peak of 0.97% at the end of last week. What was also noticeable was the fresh widening in spreads that speaks to the building minor stresses in European markets right now, with the gap between Italian and German 10yr yields up a further +4.2bps to 181bps, a level not seen since June 2020. As in the previous session, those moves were seen in the credit space too, with the iTraxx Crossover widening +3.7bps to 418bps, leaving it just shy of its recent peak at 421bps in early March.

Another cause for concern in European markets have been the ongoing tensions between Russia and the West over Ukraine, with the Euro falling by a further -0.55% yesterday to $1.0499, the first close below $1.05 since early 2017, although this morning it has moved back up to $1.0514. Conversely the dollar index (+0.65%) continued its upward march, strengthening for the 19th time in the last 21 sessions, and closing at its strongest level since 2002. That comes as the latest reports indicate that a Russian oil embargo is moving closer, with Brent crude ending the day up +2.16% at $107.59/bbl after Dow Jones reported that Germany had dropped its opposition to an embargo, and this morning, Brent has risen further to $108.00/bbl. We also heard from President Biden, who requested $33bn from Congress for further assistance to Ukraine, including $20.4bn on security and military assistance, $8.5bn on economic assistance, and $3bn on humanitarian assistance.

Overnight in Asia, equity markets are mostly trading higher following the strong performance on Wall Street, with tech stocks leading the way. The Hang Seng (+2.04%) has seen one of the strongest performances, far outpacing mainland Chinese indices including the Shanghai Composite (+0.37%) and the CSI 300 (-0.06%). That comes amidst persistent concerns over the country’s lockdowns, with Shanghai seeing an increase in Covid-19 cases for the first time in 6 days, and overnight we also heard from China’s Politburo, with CCTV reporting that they’re urging efforts to meet the economic growth targets. Elsewhere, the Kospi (+0.78%) is trading up while markets in Japan are closed for a holiday today.

Back on the data front, another notable release yesterday came from the US GDP reading for Q1. On one level it’s a fairly backward-looking reading, but the print saw an unexpected contraction, with the economy shrinking at an annualised rate of -1.4%, marking the first quarterly contraction since the lockdowns of Q2 2020. That said, there are no indications this is going to derail the Fed from their path of rate hikes, with a 50bps move next week still fully priced in. In fact, there was a massive drag coming from the surprisingly large trade deficit, while underlying consumption was actually very robust, suggesting rates need to get even higher to slow demand, as we’ve been arguing. In turn, the amount of Fed hikes priced for the rest of the year moved up +2.2bps to 239bps, and this morning they’re up to 242bps, just shy of their closing high last Friday at 244bps. That led to a renewed flattening in the yield curve, and 2yr yields gained +2.6bps while 10yr yields fell -0.9bps. Despite the tepid headline nominal move, there was a big divergence in 10yr inflation breakevens and real yields. Breakevens gained +7.3bps to 2.98%, a few bps shy of their highest levels on record from last week. By contrast, real yields fell -8.2bps to -0.16%, taking them a further from positive territory ahead of next week’s FOMC where its also widely-anticipated they will announce the beginning of their QT program.

To the day ahead now, and data releases include the flash CPI estimate for the Euro Area in April, as well as the first look at Q1 GDP for the Euro Area, Germany, France and Italy. Otherwise from the US, we’ll get March’s data on personal spending and personal income, the Q1 employment cost index, the MNI Chicago PMI for April, and the University of Michigan’s final consumer sentiment index for April. From central banks, we’ll hear from the ECB’s de Cos, and the Central Bank of Russia will be making its latest policy decision. Finally, earnings releases include ExxonMobil, Chevron, AbbVie, Bristol-Myers Squibb, Honeywell International, Charter Communications, Aon and NatWest.

Tyler Durden Fri, 04/29/2022 - 07:33

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Off Campus Texas A&M Housing With “Resort Style” Rooftop Pool Defaults On Debt Payment

Off Campus Texas A&M Housing With "Resort Style" Rooftop Pool Defaults On Debt Payment

Who could have possibly thought, amidst all this…

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Off Campus Texas A&M Housing With "Resort Style" Rooftop Pool Defaults On Debt Payment

Who could have possibly thought, amidst all this euphoria, that luxury college housing complexes for students might not be the best idea in the world?

It's looking like for one complex - with, of course, a "resort style" rooftop pool (which everybody knows is integral to ones studies) - near the Texas A&M University campus is starting to find out this harsh reality. 

The 3,400-bed student housing complex, called Park West, is going to default on its July debt payment according to Moody’s Investors Service, who downgraded the company's bonds deeper into junk territory this week.

The property, which provides off-campus housing for students, is located in College Station, Texas, Bloomberg reported in a mid-week wrap up. It has reportedly been struggling since even before the pandemic, thanks to the building's higher rents.

Moody's commented: “The project’s financial distress is directly linked to prolonged weakness within its College Station, Texas student housing submarket which has been an ongoing problem since Park West opened for fall 2017.”

$15.3 million is due in principal and interest, but the complex will only pay $8.5 million. The company that sold the bonds, NCCD-College Station Properties LLC, still has about $342 million in bonds outstanding, Bloomberg reported. 

The vice president and director of operations for the company confirmed that the company would default but offered up no other color. 

For a look at the complex's posh amenities, you can review its website here. 

Tyler Durden Fri, 07/01/2022 - 21:55

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“Worst Start Since 1788”: A Closer Look At The Catastrophic First Half Performance

"Worst Start Since 1788": A Closer Look At The Catastrophic First Half Performance

As discussed yesterday…

Worst first half for stocks…

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"Worst Start Since 1788": A Closer Look At The Catastrophic First Half Performance

As discussed yesterday...

... and again this morning, when Rabobank's Michael Every said that "if you bought stocks in H1, you lost; if bonds, you lost; if commodities, you were doing great until recently; if crypto you lost; if the US dollar, you were fine" but lost purchasing power to inflation, the first six months of the year were terrible.

Just how terrible? To quantify the destruction, we go to the latest chart of the day from DB's Jim Reid who writes that "the good news is that H1 is now over. The bad news is that the outlook for H2 is not looking good."

To demonstrate just how bad H1 was, Reid shares three charts.  They show that:

1) Deutsche Bank's US 10yr Treasury proxy index did indeed see the worst H1 since 1788 in spite of a sizeable late June rally, and...

2) the S&P 500 saw the worst H1 total return since 1962 after a rally last week just pulled it back from being the worst since 1932.

Here, BofA has outdone DB, and notes that in real timers, the S&P500's performance was the worst since 1872!

As Reid further notes, "I’ve found through my career that these type of charts are always the most demanded as investors want to put their performance in context." Which is why he also added a the third chart which is an abridged version of one published by DB's Henry Allen in a report fully reviewing H1, June and Q2 (more below, and also available to professional subs in the usual place).

As Reid concludes, "if you like horror stories its an alternative to Stranger Things which returns to our global screens today. Obviously if you run a commodity fund you may think differently!"

Stepping back from this narrow take, we look at the full performance review for June and Q2 conducted by Reid's colleague, Henry Allen, which finds that "it's hard to overstate just how bad markets have performed over recent months, with the returns in Q2 very much following in Q1’s footsteps... a range of asset classes saw significant losses, including equities, credit and sovereign bonds, whilst the US dollar and some commodities like oil were among the few exceptions. In fact, in total return terms we’ve just seen the biggest H1 decline for the S&P 500 in 60 years, and in June alone just 2 of the 38 non-currency assets in our sample were in positive territory, which is the same as what we saw during the initial market chaos from the pandemic in March 2020."

On a YTD basis as well, just 4 of 38 tracked assets are in positive territory, which as it stands is even lower than the 7 assets that managed to score a positive return in 2008.

The main reason for these broad-based declines is the fact that recession and stagflation risks have ramped up significantly over Q2. This has been for several reasons, but first among them is the fact that inflation has proven far more persistent than the consensus expected once again, requiring a more aggressive pace of rate hikes from central banks than investors were expecting at the start of the quarter. For instance, the rate priced in by Fed funds futures for the December 2022 meeting has risen from 2.40% at the end of Q1 to 3.38% at the end of Q2. A similar pattern has been seen from other central banks, and the effects are beginning to show up in the real economy too, with US mortgage rates reaching a post-2008 high. The good news is that as of today, the market is now pricing in not just rate hikes to peak in Q4, but about 14bps of rate cuts in Q1.

in any case, the big worry from investors’ point of view is that the cumulative effect of these rate hikes will be enough to knock the economy into recession, and on that front we’ve seen multiple signs pointing to slower growth recently in both the US and Europe. For instance, the flash Euro Area composite PMI for June came in at a 16-month low of 51.9, whilst its US counterpart fell to a 5-month low of 51.2. Other recessionary indicators like the yield curve are also showing concerning signs, with the 2s10s Treasury curve still hovering just outside inversion territory at the end of the quarter, at just +5.1bps. The energy shock is adding to these growth concerns, and that’s persisted over Q2 as the war in Ukraine has continued. Brent crude oil prices built on their sizeable gains from Q1, with a further +6.4% rise in Q2 that left them at $115/bbl. Meanwhile, European natural gas is up by +14.8% to €145 per megawatt-hour. However, fears of a global recession have knocked industrial metals prices significantly, and the London Metal Exchange Index has just seen its first quarterly fall since the initial wave of the pandemic in Q1 2020, and its -25.0% decline is the largest since the turmoil of the GFC in Q4 2008.

That decline in risk appetite has knocked a range of other assets too:

  • The S&P 500 slumped -16.1% over Q2, meaning its quarterly performance was the second worst since the GFC turmoil of Q4 2008.
  • Sovereign bonds built on their losses from Q1,
  • Euro sovereigns (-7.4%) saw their worst quarterly performance of the 21st century so far as the ECB announced their plan to start hiking rates from July to deal with high inflation.
  • Cryptocurrencies shared in the losses too, with Bitcoin’s (59.0%) decline over Q2 marking its worst quarterly performance in over a decade

Which assets saw the biggest gains in Q2?

  • Energy Commodities: The continued war in Ukraine put further upward pressure on energy prices, with Brent crude (+6.4%) and WTI (+5.5%) oil both advancing over the quarter. The rise was particularly noticeable for European natural gas, with futures up by +14.8% as the continent faces up to the risk of a potential gas cut-off from Russia.
  • US Dollar: The dollar was the best-performing of the G10 currencies in Q2 as it dawned on investors that the Fed would hike more aggressively than they expected, and the YTD gains for the dollar index now stand at +9.4%.

Which assets saw the biggest losses in Q2?

  • Equities: Growing fears about a recession led to significant equity losses in Q2, with the S&P 500 (-16.1%) seeing its second-worst quarterly performance since the GFC turmoil of Q4 2008. That pattern was seen across the world, with Europe’s STOXX 600 down -9.1%, Japan’s Nikkei down -5.0%, and the MSCI EM index down -11.4%.
  • Credit: For a second consecutive quarter, every credit index we follow across USD, EUR and GBP moved lower. EUR and USD HY saw some of the worst losses, with declines of -10.7% and -9.9% respectively.
  • Sovereign Bonds: As with credit, sovereign bonds lost ground on both sides of the Atlantic, and the decline in European sovereigns (-7.4%) was the worst so far in the 21st century. Treasuries also lost further ground, and their -4.1% decline over Q2 brings their YTD losses to -9.4%.
  • Non-energy commodities: Whilst energy saw further gains over Q2, other commodities saw some major declines. Industrial metals were a significant underperformer, with the London Metal Exchange Index (-25.0%) seeing its largest quarterly decline since the GFC turmoil of 2008. Precious metals lost ground too, with declines for both gold (-6.7%) and silver (-18.2%). And a number of agricultural commodities also fell back, including wheat (-13.6%).
  • Japanese Yen: The Japanese Yen weakened against the US Dollar by -10.3% over Q2, which also marked its 6th consecutive quarterly decline against the dollar. By the close at the end of the quarter, that left the Yen trading at 136 per dollar, which is around its weakest level since 1998. That came as the Bank of Japan has become the outlier among the major advanced economy central banks in not hiking rates with even the Swiss National Bank hiking in June for the first time in 15 years.
  • Cryptocurrencies: The broader risk-off tone has been bad news for cryptocurrencies, and Bitcoin’s -59.0% decline over Q2 is its worst quarterly performance in over a decade. Other cryptocurrencies have lost significant ground as well, including Litecoin (-59.2%) and XRP (-61.2%).

June Review

Looking specifically at June rather than Q2 as a whole, the picture looks even worse in some ways since just 2 of the 38 non-currency assets are in positive territory for the month, which is the same number as in March 2020 when global markets reacted to the initial wave of the pandemic. The two positive assets are the Shanghai Comp (+7.5%) and the Hang Seng (+3.0%), which have been supported by improving economic data as Covid restrictions have been eased. Otherwise however, it’s been negative across the board, and even commodities have struggled after their strong start to the year, with Brent crude (-6.5%) and WTI (7.8%) posting their first monthly declines so far this year as concerns about a recession have mounted. The main catalyst for this was the much stronger-than-expected US CPI print for June, which triggered another selloff as it dawned on investors that the Fed would be forced to hike rates even more aggressively to rein in inflation, which they followed through on at their meeting when they hiked by 75bps for the first time since 1994.

Finally, without further ado, here are the charts showing total returns for the month of June...

... for Q2...

... and for YTD.

Tyler Durden Fri, 07/01/2022 - 15:00

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Risk Capital and Markets: A Temporary Retreat or Long Term Pull Back?

As inflation has taken center stage, markets have gone into retreat globally, and across asset classes. In 2022, as bond rates have risen, stock prices…

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As inflation has taken center stage, markets have gone into retreat globally, and across asset classes. In 2022, as bond rates have risen, stock prices have fallen, and crypto has imploded, even true believers are questioning what the bottom for markets might be, and when we will get there. While it is easy to call the market movement in 2022 a correction and to argue that it is overdue, it is facile, and it fails to address the question of why it is happening now, and whether the correction is overdone or has more to go. In this post, I will argue that almost everything that we are observing in markets, across asset classes, can be explained by a pull back on risk capital, and that understanding the magnitude of the pull back, and putting in historical perspective, is key to gauging what is coming next.

Risk Capital: What is it?

To put risk capital in perspective, it is best to start with a definition of risk that is comprehensive and all-inclusive, and that is to think of risk as a combination of danger (downside) and opportunity (upside) and to consider how investments vary in terms of exposure to both. In every asset class, there is a range of investment choices, with some being safer (or even guaranteed) and others being riskier.

Risk capital is the portion of capital that is invested in the riskiest segments of each market and safety capital is that portion that finds its way to the safest segments in each market

While risk and safety capital approach the market from opposite ends in the risk spectrum, one (safety capital) being driven by fear and the other (risk capital), by greed, they need to not only co-exist, but be in balance, for the market to be healthy. When to two are not in balance, these imbalances can have profound and often unhealthy effects not just of markets, but also on the overall economy. At the extremes, when risk capital is absent and everyone seeks safety, the economy and markets will atrophy, as businesses and investors will stay away from risky ventures, and when risk capital is too easy and accessible, risky asset prices will soar, and the economy will see too much growth in its riskiest segments, often at the expense of more stable (and still necessary) businesses.

Risk Capital's Ebbs and Flows

It is a common misconception that the risk-takers supply risk capital (risk takers) and that the investors who invest for safety draw from different investor pools, and that these pools remain unchanged over time. While investor risk aversion clearly does play a role in whether investors are drawn to invest in risk or safety capital, it obscures two realities:

  1. Variation within an investor's portfolio: Many investors, including even the most risk averse, may and often do  set aside a portion of their portfolios for riskier investments, drawn by the higher expected returns on those investments. For some investors, this set aside will be the portion that they can afford to lose, without affecting their life styles in any material way. For others, it can be the portion of their capital with the longest time horizon (pension fund savings or 401Ks, if you are a young investor, for example), where they believe that any losses on risk capital can be made up over time. For still others, it is that segment of their portfolios that they treat las long shot gambles, hoping for a disproportionately large payoff, if they are lucky. The amount that is put into the risk capital portion will vary with investor risk aversion, with more risk averse investors putting less or even nothing into the riskiest assets, and less risk averse investors putting in more.
  2. Variation across time: The amount that investors are willing to put into risk capital, or conversely redirect to safety capital, will change over time, with several factors playing a role in determining whether risk capital will be plentiful or scarce. The first is market momentum, since more money will be put into the riskiest asset classes, when markets are rising, because investors who benefit from these rising markets will have more capital that they are willing to risk. The second is the the health and stability of the economy, since investors with secure jobs and rising paychecks are more willing to take risks. 

There are two macro factors that will come into play, and both are in play in markets today. The first is the return that can be earned on guaranteed investments, i.e., US treasury bills and bonds, for instance, if you are a investor in US dollar, since it is a measure of what someone who takes no or very low risk can expect to earn. When treasury rates are low or close to zero, refusing to take risk will result in returns that are very low or close to zero as well, thus inducing investors to expose themselves to more risk than they would have taken in higher interest rate regimes. The second is inflation, which reduces the nominal return you make on all your investments, and the effects of rising inflation on risk capital are complex. As expected inflation rises, you are likely to see higher interest rates, and as we noted above, that may induce investors to cut back on risk taking and focus on earning enough to cover the ravages of inflation. As uncertainty about inflation rises, you will see reallocation of investment across asset classes, with real assets gaining when unexpected inflation is positive (actual inflation is higher than expected), and financial assets benefiting when unexpected inflation is negative (actual inflation is less than expected).

And Consequences

    If you are wondering why you should care about risk capital's ebbs and flows, it is because you will feel its effects in almost everything you do in investing and business. 

  1. Risk Premiums: The risk premiums that you observe in every risky asset market are a function of how much risk capital there is in play, with risk premiums going up when risk capital becomes scarcer and down, when risk capital is more plentiful. In the bond and loan market, access to risk capital will determine default spreads on bonds, with lower rated bonds feeling the pain more intensely when risk capital is withdrawn or moves to the side lines. Not only will default spreads widen more for lower-rated bonds, but there will be less bond issuances by riskier companies. In the equity market, the equity risk premium is the price of risk, and its movements will track shifts in risk capital, increasing as risk capital becomes scarcer. 
  2. Price and Value Gaps: As those of you who read this blog know well, I draw a contrast between value and price, with the former driven by fundamentals (cash flows, growth and risk) and the latter by mood, momentum and liquidity. The value and price processes can yield different numbers for the same company, and the two numbers can diverge for long periods, with convergence not guaranteed but likely over long periods.

    I argue that investors play the value game, buying investments when the price is less than the value and hoping for convergence, and that traders play the pricing game, buying and selling on market momentum, rather than fundamentals. At the risk of generalizing, safety capital, with its focus on earnings and cash flows now, is more likely to focus on fundamentals, and play the investor game, whereas risk capital, drawn by the need to make high returns quickly, is more likely to play the trading game. Thus, when risk capital is plentiful, you are more likely to see the pricing game overwhelm the value game, with prices often rising well above value, and more so for the riskiest segments of every asset class. A pull back in risk capital is often the catalyst for corrections, where price not only converges back on value, but often overshoots in the other direction (creating under valuations). It behooves both investors and traders to therefore track movements in risk capital, since it is will determine when long term bets on value will pay off for the former, and the timing of entry into and exit from markets for the latter.
  3. Corporate Life Cycle: The ebbs and flows of risk capital have consequences for all businesses, but the effects will vary widely across companies, depending on where they are in the life cycle. Using another one of my favorite structures, the corporate life cycle, you can see the consequences of expanding and shrinking risk capital, through the lens of free cash flows (and how they vary across the life cycle).

    Early in the corporate life cycle, young companies have negative free cash flows, driven by losses on operations and investments for future growth, making them dependent on risk capital for survival and growth. As companies mature, their cash flows first become self sustaining first, as operating cash flows cover investments, and then turn large and positive, making them not only less dependent on risk capital for survival but also more valued in an environment where safety capital is dominant. Put simply, as risk capital becomes scarcer, young companies, especially those that are money-losing and with negative cash flows, will see bigger pricing markdowns and more failures than more mature companies.

Risk Capital: Historical Perspective

How do you track the availability and access to risk capital over time? There are three proxies that I will  use, and while each has its limitations, read together, they can provide a fuller measure of the ebbs and flows of risk capital. The first is funds invested by venture capitalists, with a breakdown further into types, from pre-seed and seed financing to very young companies to capital provided to more young companies with more established business models, as a prelude to exit (acquisition or IPO). The second is the trend line in initial public offerings (number and value raised), since companies are more likely to go public and be able to raise more capital in issue proceeds, when risk capital is plentiful. The third is original bond issuances by the riskiest companies (below investment grade and high yield), since these issuances are more likely to have a friendly reception when risk capital is easily available than when it is not.

Let’s start with venture capital, the typical source of capital for start ups and young companies for decades in the United States, and more recently, in the rest of the world. In the graph below, I trace out total venture capital raised, by year, between 1995 and 2021, in the US: 

Source: NVCA Yearbooks
The dot-com boom in the 1990s created a surge in venture capital raised and invested, with venture capital raised peaking at more than $100 billion in 2000, before collapsing as the that bubble burst. The 2008 banking and market crisis caused a drop of almost 50% in 2009, and it took the market almost five years to return to pre-crisis levels.   In the just-concluded decade, from 2011 to 2020,  the amount raised and invested by venture capitalists has soared, and almost doubled again in 2021, from 2020 levels, with venture capital raised in 2021 reaching an all-time high of $131 billion, surpassing the 2000 dot-com boom levels, albeit in nominal terms. Along the way, exits from past venture capital investments, either in IPOs or in M&A, have become more lucrative for the most successful companies, with 43 exits that exceeded a billion (the unicorn status) in 2021. 

If success in venture capital comes from exiting investments at a higher pricing, initial public offerings represent the most lucrative route, and tracking the number of initial public offerings over time provides a window on the ebbs and flows of risk capital, over long periods. Using data made public by Jay Ritter on IPOs, I track the number of IPO and dollar proceeds from offerings in the graph below from 1980 to 2021:
Source: Jay Ritter
As you can see, IPOs go through hot periods (when issuances surge) and cold ones (when there are relatively few listed), with much of the last decade representing hot periods and 2000/01 and 2008/09 representing periods when there were hardly any offerings. While the number of IPOs in 2021 is still below the peak dot-com years, the proceeds from IPOs has surged to an all-time high during the year.

    In the final graph, I look at corporate bond offerings, broken down into investment grade and high yield, by year, from 1996 to 2021:

Source: SIFMA

Here again, you see a familiar pattern, with the percentage of high-yield bond issuances tracking the availability of risk capital. As with IPOs, you see big dips in 2000-01and 2008-09, reflecting market corrections and crises, and a period of easy access to risk capital in the last decade. Again, the percentage of corporate bond issuances hit an all-time high in 2021, representing more than a quarter of all bond issuances. In sum, all three proxies for risk capital show the same patterns over time, pulling back and surging during the same time periods, and with all three proxies, it is clear that 2021 was a boom year.

An Update

The last two and a half years may not represent much time on a historical scale, but the period has packed in enough surprises to make it feel like we have aged a decade. We started 2020 with a pandemic that altered our personal, work and financial lives, and in 2022, at least in North America and Europe, we have seen inflation reach levels that we have not seen for decades. Looking at the 30 months through the lens of risk capital can help us understand not only the journey that markets have gone through to get where they are today, but also perhaps decipher where they may go next. In the graph below, I look at venture capital, IPOs and high yield bond issuances over the last two and a half years:


The first thing to note is that there was a pullback on all three measures in the first quarter of 2020, as COVID put economies into deep freeze and rolled markets. The big story, related to COVID, is that risk capital not only did not stay on the side lines for long but came surging back to levels that exceeded pre-COVID numbers, with all three measures hitting all-time highs in 2021. In a post in late 2020, I argued that it was the resilience of risk capital that explained why markets recovered so quickly that year, even as the global economy struggled, that year, and pointed to three explanatory factors. The first was the perception that the COVID shut-down was temporary, and that economies would come back quickly, once the immediate threat from the virus passed. The second was the decline in interest rates across the globe, with rates in developed market currencies (US $, Euro, Japanese Yen etc.) moving towards zero, increasing the costs of staying on the sidelines.  The third was a change in investor composition, with a shift from institutional to individual investor market leadership, and increased globalization.

    The first half of 2022 has been a trying period for markets, and as inflation has risen, it is having an effect on the availability of and access to risk capital. There has been a pullback in all three proxies for risk capital, albeit smaller in venture capital, than in IPOs and in high-yield bond issuances in the first few months of 2022. That pullback has had its consequences, with equity risk premiums rising around the world. In the graph below, I have updated the equity risk premium for the S&P 500 through the start of July 2022:

Spreadsheet for implied ERP

The chart reveals how unsettling this year has been for equity investors, in the United States. Not only has the implied ERP surged to 6.43% on June 23, 2022, from 4.24% on January 1, 2022, but stocks are now being priced to earn 9.45% annually, up from the 5.75% at the start of the year. (The jump in ERP may be over stated, since the forward earnings estimates for the index, from analysts, does not seem to be showing any upcoming pain from an expected recession. )

As inflation and recession fears have mounted, equity markets are down significantly around the world, but the drop in pricing has been greatest in the riskiest segments of the market. In the table below, I look at the price change in the first six months of 2022 for global stocks, broken down by quintiles, into net profit margin and revenue growth classes:
Source for raw data: S&P Cap IQ

Note that high growth, negative earnings companies have fared much worse, in general, during the 2022 downturn, than more mature, money-making companies.  The fear factor that is tilting the balance back to safety capital from risk capital has also had clear consequences in the speculative collectibles space, with cryptos bearing the brunt of the punishment. Finally, there are markdowns coming to private company holdings, both in the hands of venture capitalists, and public market investors (including mutual funds that have been drawn into this space and public companies like Softbank).

    The big question that we all face, as we look towards the second half of the year, is whether the pullback in risk capital is temporary, as it was in 2020, or whether it is more long term, as it was after the dot-com bust in 2000 and the market crisis in 2008. If it is the former, there is hope of not just a recovery, but a strong rebound in risky asset prices, and if it is the latter, stocks may stabilize, but the riskiest assets will see depressed prices for much longer. I don't have a crystal ball or any special macro forecasting abilities, but if I had to guess, it would be that it is the latter. Unlike a virus, where a vaccine may provide at least the semblance of a quick cure (real or imagined), inflation, once unleashed, has no quick fix. Moreover, now that inflation has reared its head, neither central banks nor governments can provide the boosts that they were able to in 2020 and may even have to take actions that make things worse, rather than better, for risk capital. Finally, at the risk of sounding callous, I do think that a return of fear and a longer term pullback in risk capital is healthy for markets and the economy, since risk capital providers, spoiled by a decade or more of easy returns, have become lazy and sloppy in their pricing and trading decisions, and have, in the process, skewed capital allocation in the economy. If a long-term slowdown is in the cards, it is almost certain that the investment strategies that delivered high returns in the last decade will no longer work in this new environment, and that old lessons, dismissed as outdated just a few years go, may need to be relearned. 

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