Wednesday, 27 November 2019

Markets rise as investors become extremely bullish but economic data “not encouraging”

Markets rose on Tuesday.

The S&P 500 0.2 percent to close at another all-time high, the STOXX Europe 600 rose 0.1 percent and the Nikkei 225 rose 0.4 percent.

“With global central banks pumping liquidity into the system and investors sensing that a trade deal is coming, that could create more upside,” said Yousef Abbasi, director of US institutional equities at INTL FCStone.

Indeed, an analysis by Qontigo subsidiary Axioma suggests that market sentiment has become extremely bullish.

“With sentiment this strong, Wednesday’s data releases on third-quarter GDP and personal spending would have to come in well below consensus to shake investors confidence,” said Olivier d’Assier, head of applied research at Axioma. “On the other hand, even a slight beat on forecasts is likely to be met with an over-reaction on the upside.”

However, some analysts think that investors may be underestimating the chances of a recession in 2020.

Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, noted that even as the S&P 500 has been rallying, the economic data “have not been encouraging”.

Tom Essaye, president of the Sevens Report, said that it is “notable” that first-time claims for jobless benefits are rising while the yield curve “has begun to compress, relatively rapidly”.

Jeffrey Schulze, an investment strategist at ClearBridge Investments, puts the chances of a recession in 2020 at 50 percent, based in large part on the inversion of the yield curve earlier this year and the sharp slowdown in manufacturing.

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