Peaky markets more durable than they look
New York (May 12) Stock markets appear to have run into the sand after several weeks of torrential inflows. By Bank of America's reckoning the influx into world equity funds over the past five months exceeded that of the past 12 years combined.
Fears of 'too much, too soon' prompted many investment firms - including Deutsche Bank, Morgan Stanley and JPMorgan - to warn in recent weeks of a possible 5-10% correction ahead.
This week's tech-led shakeout - the second such wobble in less than 3 months - reinforced a whole host of those anxieties - everything from 'peak' business sentiment, earnings and output growth to 'peak' central bank largesse, excess liquidity and investment flows.
The unfolding surge in economic activity as economies reopen may endure for another year or more. But annual or annualised rates of change may be cresting while related commodity price rebounds, supply bottlenecks and annual base effects keep hands wringing that 'peak' inflation is yet to come - whether tolerated by central banks or not.
Unlike February's sharp intake of breath, this week's equity market gasp had little to do with rising interest rates or long-term borrowing costs per se. Implied yields on one of the widest measures of public and private sector bonds worldwide - the Bloomberg Barclays Multiverse - has barely budged for 2 months.
And yet Morgan Stanley - a long-standing and accurate predictor a V-shaped equity market bounce since the pandemic shock last March - now posits that we're already in a 'mid-cycle transition' where 'flattish' returns for 2021 as a whole are to be expected, with a 10-20% correction along the way.
Reuters
