DBG-08 The Phantom of the Financial Crisis Emerges?

DBGShield BoForeign exchange signals that US equities are in a difficult time. Both good and bad news on economic data seem to be a hit. If there is any good news, at least the S & P 500's 200-day moving average (at 4,195 on Tuesday) still has support.

Jobless claims in the US fell to 201,000 on Thursday, an eight-month low and close to the lowest level of the current cycle, running counter to the Federal Reserve's efforts to guide a slowdown in the labor market to control inflation. As a result, the S & P 500 index fell sharply by 1.6%. On Tuesday, the Conference Board reported that US consumer confidence fell to a four-month low. As a result, the S & P 500 index fell sharply by 1.5%.

So why do both good economic news and bad economic news bring bad results to the stock market? DBG believes that this shows thatPerhaps there is another force driving the market, namely the surge in bond yields, which may not be data-driven at all.

Deutsche Bank cites a chart that points out that the previously close link between the gold-copper ratio and the yield on 10-year U.S. Treasury bonds has completely broken down.

The bank's analysts' opinion is that,The rise in long-term Treasury yields stems from large fiscal deficits, the Federal Reserve's continued quantitative tightening, and its exclusion of interest rate cuts.

The Deutsche Bank team pointed out that unless the Federal Reserve is more dovish on interest rates or adopts a far less aggressive quantitative tightening program, higher bond yields will not bring good results for U.S. stocks.

Credit analysts led by Steve Caprio, head of credit strategy for Europe and the United States, said, "If our cyclical estimates are close to correct, thenThe aggressive tightening of policy by central banks is making the economic environment similar to that of late 2000 and 2007. "

JPMorgan Chase Chief Market Strategist Marko Kolanovic alsoHe saw the shadow of the 2008 financial crisis in the current U.S. economy and urged customers to avoid bonds and stocks in favor of cash。

In his latest note to clients, Mr. Kolanovic, who issued a series of prescient market forecasts in 2015, warned that the US economy was heading for a deep recession as interest rates and bond yields climbed. Now he is repeating that neither stocks nor bonds are safe and urging clients to keep their cash holdings and enjoy relatively risk-free returns of more than 5 per cent.

Kolanovic said,He saw signs of increased bankruptcies and consumer loan defaults in 2008 resurface, which coincided with the erosion of extra savings during the COVID-19 pandemic。

Kolanovic is watching rising borrowing costs,Since the Federal Reserve began raising interest rates last year, borrowing costs have risen even more than before the financial crisis.

Rising interest rates are not the only problem facing stocks and bonds.The expected slowdown in fiscal spending could exacerbate the woes of the U.S. economyTensions in Russia and other countries pose new geopolitical risks and could also trigger wild market volatility.

Kolanovic believes that the headwinds facing the stock market have intensified since he maintained a bearish stance earlier this year, even as the S & P 500 and Nasdaq Composite index rose and the strong performance of the U.S. economy surprised many on Wall Street.

Mr. Kolanovic said the current economic backdrop in the US was "similar" to the years before the financial crisis, as rising interest rates could penalise overextended consumers and businesses. "As a result, the current rate change is about five times higher than the increase in 2002-2008," he said. "Of course, before 2008, consumer balance sheets and leverage in the housing market and the financial sector were higher than they are now, but investors should still carefully monitor the spread of interest rate shocks across different sectors of the market and the economy."

He alsoDoubting the long-term effects of the artificial intelligence boom,That has helped boost the S & P 500 and Nasdaq Composite this year, but most S & P 500 stocks have remained flat or slightly lower since Jan. 1.

"Can artificial intelligence transform the economy and counteract the negative effects of inflation and interest rates? We don't think so," Mr. Kolanovic said. "Artificial intelligence could provide a speculative boost to the stock market, as it did earlier this summer. Some of the wealth effects of high stock market valuations could also be transmitted to the economy through broad consumer sentiment, which could delay a slowdown, but that impact could also disappear soon."