Market overview
Due to Thanksgiving, last week saw low trading volumes, with US markets closed on Thursday and a listened-to session on Friday. Despite this, the three active trading days demonstrated the resilience of the US markets, albeit without a clear direction. Attention now turns to Black Friday results to gauge consumer sentiment.
Actions and risk management
We continued to receive signals of a short-term slowdown in the S&P 500 and NASDAQ indices. Following these indicators, we continued our strategy initiated last week to reduce active portfolio risk, while striving to minimize the impact on performance. We start this week with active portfolio risk below that of the S&P 500. Our quantitative and systematic approach continues to signal potential breaks for the indices.
Fixed income
Short-term US bond yields have rebounded slightly, and expectations of rate cuts have also fallen slightly. For our income portfolio, we are anticipating the end of rate hikes and have started to analyze different credit tranches as potential options to obtain additional yield without necessarily lengthening maturity.
Market analysis
Bloomberg Economics warns of a potential economic slowdown, contrary to market expectations for a perfect soft landing. Indicators such as prolonged unemployment, falling real personal income and slowing credit demand signal an imminent slowdown. Data often cited by soft-landing advocates have historically misled policymakers in past recessions. Events such as Cyber Monday and forthcoming economic releases, such as Eurozone inflation and China's PMIs, will provide further information.
Global economic developments
- China's slowdown in industrial profits raises concerns about global deflation.
- Yields on US Treasuries rose, with 10-year yields reaching 4.51%.
- The Biden administration is focusing on strengthening supply chains, reflecting concerns about inflation.
- Tensions between Israel and Hamas underline geopolitical risks.
Data monitoring
Key data releases to watch include US new home sales, Dallas Fed manufacturing activity and economic surveys from Brazil and Mexico. These data points will provide insight into economic activity and potential market movements.
Market sentiment
Despite the VIX index reaching its lowest level since January 2020, markets remain cautious. Investors are currently betting against further rate hikes by the Federal Reserve and the European Central Bank.
Investment strategy
Given the anticipated economic slowdown and market developments, our strategy will continue to focus on risk management, while seeking opportunities in sectors likely to benefit from a recovery. We will also keep a close eye on emerging market dynamics and potential changes in global central bank policies.
What we're seeing this week
This week, our attention is focused on several key economic indicators and market events that could significantly influence our investment strategies and risk management approaches.
Here are the highlights:
Monday :
- Weekly survey of Central Bank of Brazil economists: Outlook for the Brazilian economy.
- Sale of US Treasury notes: The sale of 2-year and 5-year notes will be closely monitored for investor appetite and yield trends.
Tuesday :
- U.S. New Home Sales (October): Expected to show a decline, reflecting the impact of higher mortgage rates.
- Dallas Fed manufacturing activity: Indicators of the health of the manufacturing sector in one of America's largest states.
Wednesday :
- Fed Beige Book: Anecdotal information on current economic conditions. This will be particularly important for understanding demand and labor market conditions.
Thursday :
- US Personal Consumption Expenditure (PCE) data for October: A key indicator of inflation and consumer trends.
- Cyber Monday: Analysis of retail data after Cyber Monday will provide insights into consumer behavior.
Friday :
- US and Eurozone PMIs: Purchasing Managers' Index data will offer insights into the health of the manufacturing sector.
Throughout the week, we'll also be keeping an eye on ongoing geopolitical developments, such as the situation between Israel and Hamas, and any further announcements or policy changes from the Biden administration regarding supply chain resilience.
In conclusion, this week promises to be a crucial one for the financial markets, with a series of events and economic publications likely to have a considerable influence on our investment strategies and risk management approaches. Faced with an ever-changing economic landscape, marked by mixed signals and geopolitical uncertainties, it is essential to remain vigilant and proactive.
Have a good week,
Pratte's portfolio management team.
