6M22 Week 1st — Macro View : Market pricing seems to ignore elephant in the room

The ods of getting softlanding was getting harder, yet valuation only corrected by a bit.

Most of the things that i will be said was already known throughout market. Based on observation of data between market and several economic data . There’s 2 different of outcome based on which only one was true eventually :

• In the next few quarter, we should see slowdown on demand and inflation which translate to lower market earnings. Worst case could end-up with economic recession. Current market valuation doesn’t reflect this kind of scenario.
• Market expect some soft-landing or fed pivoting mid-way due worsening economic condition that doesn’t require valuation to be further depressed. This reflect current market valuation both on equity and credit.

One of two things above should come true. Below are several data that i looked recently that justify both of my observation.

1. Synchronatic Global Slowdown = lower visibility of future earnings growth at the moment.

• This was start as china total trade slowly peaking off since 1Q21.

4 Major country had growth peak since 1H21. it’s nothing new. Source: Bloomberg

2. Inflation : Cost Push or Demand Pull = if majority of inflation coming from demand behaviour rather than supplyside. Goverment policy in tackling inflation could be reflected faster than expected.

• Retail sales already topped-off yet inventory still growing. However, if we adjust to price producer index. US Total Manufacture inventory also dropping.

Despite retail sales already topped-off inventory is still growing. Source : Bloomberg

• Even, if we assume supply-chain persist. large part of boosted demand from fiscal contributed to what happen in this year inflation.Looked at inventory/sales ratio for retail trade and wholesale. They diverge from their historical trend. this might caused due fiscal stimulus. if goverment or through market mechanism demand for inventory getting lesser. it should dampened enough for inflation pace.

Inventory to sales of retail and wholesale diverge from historical sense. Might reflect demand pull effect. Source : Bloomberg

3. Yet, Globally equity market hasn’t consider meaningsful downgrade on earnings only about 5% downside from the next 12month.

Equity Market Earnings only downgrade around 5% at max. Source : Bloomberg

Equity valuation already retrace to LT average. However, this still using current earnings which subject to be downgrade. Source : Bloomberg

4. High yield market hasn’t show any stress despite rising interest already impac significant rising yield on treasury.

Global aggregate high yield vs global aggregate treasury USD. Source : Bloomberg

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Thanks for reading, I hope you found this article useful. Always DYOR (do your own research) because conviction always come through understanding not just following.

Disclaimer

This Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained in this article constitutes a solicitation, recommendation, endorsement, or offer by me or any third-party service provider to buy or sell any securities or other financial instruments.

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This Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained in this article constitutes a solicitation, recommendation, endorsement, or offer by me or any third-party service provider to buy or sell any securities or other financial instruments.