Connect with us

Spread & Containment

Weekly investment update – Do earnings matter?

As second-quarter reporting kicks off, market expectations are high. Corporate earnings are forecast to have grown by more than 50% from the same quarter a year ago when most of the US was only slowly coming out of lockdown. Even if the actual results…

Published

on

As second-quarter reporting kicks off, market expectations are high. Corporate earnings are forecast to have grown by more than 50% from the same quarter a year ago when most of the US was only slowly coming out of lockdown. Even if the actual results fall short of the puffed-up expectations, that high growth rate should be a key support for the equity market.

Investors will be paying particular attention to what companies say about the outlook.

Beginning last year, many companies stopped providing forward guidance, that is, their view on whether sales and profits would be higher or lower than the last time they had spoken with analysts and investors. At the time, the outlook was so uncertain; CEOs and CFOs felt they simply had no basis on which to make a forecast.

Speaking out again

Already in this year’s first-quarter earnings season, the volume of guidance had reverted to where it had been pre-pandemic. As it happened, those companies that did provide an outlook tended to be more optimistic.

This should not have been surprising given that a company with a positive story to tell is more inclined to do so than a company with a poor outlook. The share of positive guidance averaged just under 25% before the lockdowns, but has more than doubled since then (see Exhibit 1).

Interest rate sensitivity – value vs. growth stocks

With earnings growth so strong, share prices have become much more sensitive to changes in interest rates, and particularly to the drivers of the change. The impact on equities of a move in the nominal 10-year Treasury yield usually depends on whether it stems from a change in inflation expectations or in real interest rates.

Inflation expectations have been falling since mid-May as the markets began to appreciate that short-term price increases would not necessarily translate into medium-term inflation. That view was reinforced by last month’s more-hawkish-than-expected Federal Open Market Committee (FOMC) meeting.

This decline has had a significant impact on the performance of value stocks, which have been highly correlated with inflation expectations (see Exhibit 2).

What is happening with real yields?

Growth stocks, by contrast, have been driven more by changes in real yields, although the correlation is negative. Real yields peaked last March and as they declined, growth stocks have done well.

Some fixed income investors have found the decline in real yields puzzling. Real yields depend on, among other things, the future level of policy rates and economic growth rate expectations.

After the latest FOMC meeting, near-term expectations for policy rates rose, but medium-term forecasts fell. This could reflect the view that inflation will be lower in the future and so policy rates do not need to be so high; in fact, 10-year inflation expectations have changed very little.

An alternative explanation is that the expected level of growth has fallen. While this is possible, it is difficult to find much recent economic data which would support a significant change in the view on the economic outlook.

And the Fed’s view on inflation?

This uncertainty makes the meeting of the policy-setting FOMC on 27-28 July particularly interesting. We do not expect any surprises, but Chair Jay Powell’s words will be scrutinised to determine if the Federal Reserve is changing its view on inflation and the timing of any tapering of its asset purchases.

The rise in coronavirus infections due to the Delta variant could lead the Fed to emphasise that the outlook is less now positive than it was a month ago.

Powell will likely reiterate the central bank’s position that inflationary pressures are transitory, even if they have been stronger than expected. Most survey and market-based measures of inflation expectations show that investors accept this analysis. One can even see in some market measures a return to the low-flation outlook we had prior to the pandemic.

Whether June’s FOMC meeting really pointed to a more hawkish Fed, with its forecast of future policy rates (the ‘dot plot’) indicating rate rises, is debatable. Powell has subsequently de-emphasised the importance of the forecasts. This month’s news conference will be another opportunity for him to clarify the Fed’s view.

Given that there is still a substantial shortfall in jobs compared to pre-pandemic trend levels, ‘substantial further progress’ is still needed before the Fed can be expected to begin to reduce its billion-dollar asset purchases.

The rise of the Delta variant could slow progress on employment further if workers become more reluctant to take face-to-face consumer services roles where much of the shortfall lies. If this happens, it will delay yet further the time when the Fed will move from talking about tapering to initiating it.


Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice.

The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.

Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).

Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

Writen by Daniel Morris. The post Weekly investment update – Do earnings matter? appeared first on Investors' Corner - The official blog of BNP Paribas Asset Management, the sustainable investor for a changing world.

Read More

Continue Reading

Spread & Containment

A rapid, highly sensitive method to measure SARS-CoV-2 in wastewater

Wastewater-based epidemiology (WBE) has been shown to be an excellent means of understanding the spread of SARS-CoV-2 in communities. It is now used in…

Published

on

Wastewater-based epidemiology (WBE) has been shown to be an excellent means of understanding the spread of SARS-CoV-2 in communities. It is now used in multiple areas across the world to track the prevalence of the virus, serving as a proxy for determining the status of COVID-19. Of particular importance is that WBE can be used to estimate the prevalence of COVID-19, including asymptomatic cases. However, one of the major drawbacks of WBE for SARS-CoV-2 has been that the traditional method was not very sensitive, and low viral loads could not be reliably detected.

Credit: Hiroki Ando, et al. Science of the Total Environment. August 8, 2022

Wastewater-based epidemiology (WBE) has been shown to be an excellent means of understanding the spread of SARS-CoV-2 in communities. It is now used in multiple areas across the world to track the prevalence of the virus, serving as a proxy for determining the status of COVID-19. Of particular importance is that WBE can be used to estimate the prevalence of COVID-19, including asymptomatic cases. However, one of the major drawbacks of WBE for SARS-CoV-2 has been that the traditional method was not very sensitive, and low viral loads could not be reliably detected.

A team of scientists from Hokkaido University and Shionogi & Co, Ltd., have developed a simple, rapid, highly sensitive method for the detection of SARS-CoV-2 in wastewater. The method, EPISENS-S, which does not require specialised equipment, was described in the journal Science of the Total Environment.

During the COVID-19 pandemic, Japan has had the lowest number of cases per capita. Thus, the viral loads in sewage have also been lower, and much more difficult to evaluate using established WBE methods—due to their low sensitivity. Prior work by the research team showed that the SARS-CoV-2 virus was associated with solids in sewage, so they focused on developing a method to analyse the solid phase of wastewater.

The method they developed, EPISENS-S, involves centrifuging collected wastewater samples to separate all the solids in the samples. The solids were then treated with a commercially available kit to extract all the RNA; the RNA was then reverse transcribed and amplified to obtain a substantial amount of DNA copies. A separate set of samples was subjected to treatment with polyethylene glycol followed by RNA extraction and reverse transcription to synthesize DNA: the method that is currently widely implemented in Japan. The DNA obtained from each of these methods was subjected to quantitative PCR (qPCR).

The team found that the EPISENS-S method is approximately 100 times more sensitive than the polyethylene glycol method. They used EPISENS-S to conduct a long-term analysis of wastewater from two sewage treatment plants in Sapporo city, and found that there was a high correlation between changes in RNA concentrations in the collected samples and changes in the number of reported cases in the city. EPISENS-S can also detect and quantify the Pepper mild mottle virus (PMMoV), which is associated with fecal matter and is used as an internal control.

EPISENS-S provides a way to track COVID-19 cases that are asymptomatic, as well as those that have not been clinically confirmed. In addition, it has great potential to continue tracking the prevalence of SARS-CoV-2 as vaccination rates increase. Finally, EPISENS-S could also be adapted to track other viral diseases with low infection numbers and viral loads.


Read More

Continue Reading

Spread & Containment

Mish’s Daily: Step Back to the Monthly Chart on Transportation

Last Friday, I spoke on Women of Wall Street Twitter Spaces and Fox Business’s Making Money with Charles Payne to talk about a key monthly moving average.What…

Published

on

Last Friday, I spoke on Women of Wall Street Twitter Spaces and Fox Business's Making Money with Charles Payne to talk about a key monthly moving average.

What makes this moving average so important right now is that three of the Economic Modern Family members are testing it. The three members, Granddad Russell 2000 (IWM), Grandma Retail (XRT) and Transportation (IYT), well deserve their status as what Stanley Druckenmiller calls the "inside" of the U.S. economy. In fact, the components of the modern family were put together before we heard Druckenmiller's viewpoint. We have observed how predictive they all are in helping us see in advance the next big market direction. Hence, these "inside" indicators -- right now -- are all sitting just above a 6–7-year business cycle low.

For the purposes of this daily and because we have featured this sector a lot lately, the chart of IYT is a perfect example of this moving average and what to watch for. Except for the brief blip in 2011 when the government shut down, and then again during the pandemic, IYT has sat above the dark blue line for 11 years. Currently, that line sits at the 195 area. The same is true with IWM and XRT, both marginally holding their monthly MAs.

So, watch IYT to either hold, and begin a rally possibly back closer to 220, or for IYT to fail 195, in which case we see the whole market selling off further.

To note, the other family members, such as Sister Semiconductors (SMH) and Prodigal Son Regional Banks (KRE) are still sitting well above the monthly MA. Big Brother Biotechnology (IBB), however, is now trading below it. And not in the family, but still notable, is the REIT sector (IYR), also sitting below it. SPY has the same MA, only that one sits at 310 (a long way off).

Incidentally, junk bonds broke down under this moving average in November 2021. The market has been slow to take junk bond's hint.

For more information on how to invest profitably in sectors like biotech, please reach out to Rob Quinn, our Chief Strategy Consultant, by clicking here.

Mish's Upcoming Seminars

ChartCon 2022: October 7-8th, Seattle (FULLY VIRTUAL EVENT). Join me and 16 other elite market experts for live trading rooms, fireside chats, and panel discussions. Learn more here.

The Money Show: Join me and many wonderful speakers at the Money Show in Orlando, beginning October 30th running thru November 1st; spend Halloween with us!

Get your copy of Plant Your Money Tree: A Guide to Growing Your Wealth and a special bonus here.


Follow Mish on Twitter @marketminute for stock picks and more. Follow Mish on Instagram (mishschneider) for daily morning videos. To see updated media clips, click here.

Mish in the Media

A business cycle is about 6-7 years - where are the indices now and what should you watch for? Mish discusses this question in this appearance on Fox's Making Money with Charles Payne.


ETF Summary

  • S&P 500 (SPY): Testing the previous low; 362 support, 370 resistance.
  • Russell 2000 (IWM): Broke the June low of 165.18; 162 support, 170 resistance.
  • Dow (DIA): Broke June low -289 support, 298 resistance.
  • Nasdaq (QQQ): Testing the June low;269 support, 280 resistance.
  • KRE (Regional Banks): Relative outperformer; 57 support, 61 resistance.
  • SMH (Semiconductors): 187 support, 194 resistance.
  • IYT (Transportation): 196 support, 200 resistance.
  • IBB (Biotechnology): 112 support, 118 resistance.
  • XRT (Retail): 55 support, 60 resistance.


Mish Schneider

MarketGauge.com

Director of Trading Research and Education

Read More

Continue Reading

Government

We can turn to popular culture for lessons about how to live with COVID-19 as endemic

As COVID-19 transitions from a pandemic to an endemic, apocalyptic science-fiction and zombie movies contain examples of how to adjust to the new norm…

Published

on

By

An endemic means that COVID-19 is still around, but it no longer disrupts everyday life. (Shutterstock)

In 2021, conversations began on whether the COVID-19 pandemic will, or even can, end. As a literary and cultural theorist, I started looking for shifts in stories about pandemics and contagion. It turns out that several stories also question how and when a pandemic becomes endemic.


Read more: COVID will likely shift from pandemic to endemic — but what does that mean?


The 2020 film Peninsula, a sequel to the Korean zombie film, Train to Busan, ends with a group of survivors rescued and transported to a zombie-free Hong Kong. In it, Jooni (played by Re Lee) spent her formative years living through the zombie epidemic. When she is rescued, she responds to being informed that she’s “going to a better place” by admitting that “this place wasn’t bad either.”

Jooni’s response points toward the shift in contagion narratives that has emerged since the spread of COVID-19. This shift marks a rejection of the push-for-survival narratives in favour of something more indicative of an endemic.

Found within

Contagion follows a general cycle: outbreak, epidemic, pandemic and endemic. The determinants of each stage rely upon the rate of spread within a specified geographic region.

Etymologically, the word “endemic” has its origins with the Greek words én and dēmos, meaning “in the people.” Thus, it refers to something that is regularly found within a population.

Infectious disease physician Stephen Parodi asserts that an endemic just means that a disease, while still prevalent within a population, no longer disrupts our daily lives.

Similarly, genomics and viral evolution researcher Aris Katzourakis argues that endemics occur when infection rates are static — neither rising nor falling. Because this stasis occurs differently with each situation, there is no set threshold at which a pandemic becomes endemic.

Not all diseases reach endemic status. And, if endemic status is reached, it does not mean the virus is gone, but rather that things have become “normal.”

Survival narratives

We’re most likely familiar with contagion narratives. After all, Steven Soderbergh’s 2011 film Contagion, was the most watched film on Canadian Netflix in March 2020. Conveniently, this was when most Canadian provinces went into lockdown during the early stages of the COVID-19 pandemic.

A clip from the film Contagion showing the disease spreading throughout the world.

In survival-based contagion narratives, characters often discuss methods for survival and generally refer to themselves as survivors. Contagion chronicles the transmission of a deadly virus that is brought from Hong Kong to the United States. In response, the U.S. Centers for Disease Control is tasked with tracing its origins and finding a cure. The film follows Mitch Emhoff (Matt Damon), who is immune, as he tries to keep his daughter safe in a crumbling Minneapolis.

Ultimately, a vaccine is successfully synthesized, but only after millions have succumbed to the virus.

Like many science fiction and horror films that envision some sort of apocalyptic end, Contagion focuses on the basic requirements for survival: shelter, food, water and medicine.

However, it also deals with the breakdown of government systems and the violence that accompanies it.

A “new” normal

In contrast, contagion narratives that have turned endemic take place many years after the initial outbreak. In these stories, the infected population is regularly present, but the remaining uninfected population isn’t regularly infected.

A spin-off to the zombie series The Walking Dead takes place a decade after the initial outbreak. In the two seasons of The Walking Dead: World Beyond (2020-2021) four young protagonists — Hope (Alexa Mansour), Iris (Aliyah Royale), Silas (Hal Cumpston) and Elton (Nicolas Cantu) — represent the first generation to come of age within the zombie-infested world.

The four youth spent their formative years in an infected world — similar to Jooni in Peninsula. For these characters, zombies are part of their daily lives, and their constant presence is normalized.

The trailer for the second season of AMC’s The Walking Dead: World Beyond.

The setting in World Beyond has electricity, helicopters and modern medicine. Characters in endemic narratives have regular access to shelter, food, water and medicine, so they don’t need to resort to violence over limited resources. And notably, they also don’t often refer to themselves as survivors.

Endemic narratives acknowledge that existing within an infected space alongside a virus is not necessarily a bad thing, and that not all inhabitants within infected spaces desire to leave. It is rare in endemic narratives for a character to become infected.

Instead of going out on zombie-killing expeditions in the manner that occurs frequently in the other Walking Dead stories, the characters in World Beyond generally leave the zombies alone. They mark the zombies with different colours of spray-paint to chronicle what they call “migration patterns.”

The zombies have therefore just become another species for the characters to live alongside — something more endemic.

The Walking Dead, Fear the Walking Dead (2015-), Z Nation (2014-18), and many other survival-based stories seem to return to the past. In contrast, endemic narratives maintain a present and sometimes even future-looking approach.

Learning from stories

According to film producer and media professor Mick Broderick, survival stories maintain a status quo. They seek a “nostalgically yearned-for less-complex existence.” It provides solace to imagine an earlier, simpler time when living through a pandemic.

However, the shift from survival to endemic in contagion narratives provides us with many important possibilities. The one I think is quite relevant right now is that it presents us with a way of living with contagion. After all, watching these characters survive a pandemic helps us imagine that we can too.

Krista Collier-Jarvis does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

Read More

Continue Reading

Trending