FNArena’s Weekly Insights – July 15 2024
Corporate Earnings, The Best Indicator?
By Rudi Filapek-Vandyck, Editor
Today’s markets are confusing many, not in the least because many traditional indicators don’t seem to apply anymore.
Us, humans, we like to at least have some sense of control or predictability about things, and when that “security” drops away, we feel uncomfortable.
This, to a large extent, explains why today’s bull market has not been widely embraced as a positive phenomenon. There are way too many contradictions involved.
When the Federal Reserve (and other central banks) embarked on a steep tightening path in early 2022 it didn’t take long for bond markets to invert; whereby short-term yields exceed those further out on the yield curve, which is a classic signal that economic recession is on the horizon.
The US yield curve started inverting in mid-2022. Two years later, the expert community is still debating whether there will be negative economic growth or not. Locally, the official statistics have remained in positive territory because of seldom-witnessed immigration influx.
The RBA might yet deliver one more rate hike, but other central banks outside of outlier Japan are all preparing for policy loosening, i.e. rate cuts. The global policy reversal has already started, now also including the RBNZ.
Bond markets in Europe and the USA have already started to price-in rate cuts before year-end. Clearly, this is a positive for equity markets… as long as that anticipated economic recession does not follow next.
Can investors simply rely on financial markets getting it right? Of course not! Markets reason in the here and now and if/when signals change down the track, they simply re-adjust accordingly without blinking first.
