La tonnara 2021

Non sappiamo che cosa pensa oggi del proprio portafoglio il Cliente dei vari Private banking, delle varie Reti, dei diversi robot advisors.

Non riusciamo a comprendere a che cosa sta pensando. Che cosa pensa di ricavare, dai suoi investimenti distribuiti dalla asset allocation, tra azioni globali ed obbligazioni globali.

Non sappiamo dire dove pensa di poter guadagnare. ma soprattutto non riusciamo a capire come pensa di difendersi, di proteggere il proprio patrimonio dai rischi.

Magari coi “ribilanciamenti”? Ci pare incredibile che oggi ci siano ancora investitori che credono a queste storielle.

Investitori che si fanno accompagnare per mano nella tonnara.

La strategia di investimento 2021 di Recce’d aveva come primo tra i suoi diversi obbiettivi di portare i propri Clienti esattamente a questo punto dell’anno (e dei mercati) ed esattamente con il portafoglio che oggi i Clienti detengono.

Ma voi amici e lettori lo avete capito, a che punto siamo arrivati, alla metà di aprile 2021?

Ad esempio, avete ricevuto notizia di ciò che è scritto, e descritto, nel grafico qui sotto.

Se non vi hanno informati, noi di Recce’d (come facciamo sempre) vi regaliamo delle informazioni utili, al proposito di un fatto di mercato importantissimo.

Lo facciamo con questo Post, ed in particolare con il grafico che avete visto qui sopra e poi con l’articolo che riproduciamo qui sotto.

Bank of America chief quant, Savita Subramanian, starts off her latest strategy note titled appropriately enough "Five Reasons To Curb Your Enthusiasm" with a question: why despite the recent upgrade of US GDP from BofA economists and why despite positive guidance from companies - which led BofA to also raise its 2021 EPS estimate - did the bank not change its year-end S&P price target of 3800, nearly 400 points below where the index is trading today?

Here is Subramanian:

Amid increasingly euphoric sentiment, lofty valuations, and peak stimulus, we continue to believe the market has overly priced in the good news. We remain bullish the economy but not the S&P 500. Our technical model, 12-month Price Momentum, has recently turned bearish amid extreme returns over the past year. We thus incorporate higher likelihood of 12m returns mean-reverting to “normal” levels by taking the weight down in our other models and raising the weight of our 12m price momentum model to 20% from 0%.

With that big picture view in mind, Subramanian then proceeds to list 5 reasons why - as the note is titled - investors should curb their enthusiasm but first makes some big picture observations, pointing out that while the correlation between returns and quarterly/annual earnings growth is low, at just 12%/22% - a host of other factors matter as well. Subramanian notes that while over the past month, only one of our five target models has grown more bullish on stocks (which is also based on earnings), the bank's 2021-22 EPS forecasts of $185 and $205 imply 2900-3200 on the S&P 500 based on the average forward P/E of 15.5x vs 20x-22x currently implied by today’s price level which is in the top ~90th %tile. Furthermore, and as we noted a few months ago, companies that beat on earnings in Q4 underperformed in the subsequent days to a level not seen since just before the dot com bubble burst, "suggesting the market was pricing in blowout earnings" and with record inflows into stocks in 1Q, such optimism has only accelerated. Translation: stocks are priced to absolute perfection and reality will most likely disappoint.

This brings us to the five reasons why according to Savita "blowout earnings =/= blowout market", and the prudent step here is to take some chips off the table, a conclusion even Goldman would agree with as the bank over the weekend reiterated that its own S&P year-end target of 4,100 isn't likely to change.

1. Sell Side Indicator < 1ppt away from euphoria: BofA's contrarian measure of Wall Street’s bullishness is <1ppt away from a “sell” signal.

As we noted last week, the last cycle when it was this close to a “sell” (May 07), the S&P dropped 7% over the next 12mths. As shown in the chart below, the indicator historically has tended to be a good predictor of subsequent returns.

Still, Subramanian hedges that she is not calling for a full-fledged bear market as just 58% of the bank's “Bear Market Signposts” have been triggered vs. 80%+ ahead of prior bear markets...

And in amusing twist, the BofA strategist says that in another measure of Wall Street bullishness: "we’re tied for last place among strategists’ forecast for the S&P 500."

2. S&P 500 valuation indicates paltry (2% p.a.) returns over the next decade: As BofA notes, valuation is almost all that matters over the long-term (~80% explanatory power as shown in chart below).

With the increase in valuations in April, BofA calculates that this framework yields 10-yr price returns of just 2%/year (versus 5% in Nov., and 10% 10 years ago).

3. Outsized (2+ std dev) returns precede losses 75% of the time: The S&P 500 posted 12 month returns of +54% through March, marking the best 12m since 1936, the third highest on record, and 2.3 std. dev. above average.

This, needless to say, is abnormal: as Subramanian notesm two+ standard deviation moves have only happened four other times since 1928, with losses occurring over the next 12 months in three of the four cases (avg. next 12m ret. of -4%).

4. Fair Value model spits out S&P 500 3635: This is based on BofA's 2022 cyclically-adjusted earnings forecast of $173 and its equity risk premium (ERP) forecast of 425bp by year-end (vs. 398bp today) as 2H shifts to concerns about peak earnings and peak stimulus.

5. The Equity Risk Premium dropped below 400bps – a contrarian negative signal: This is only the third time since the global financial crisis that the ERP dropped below 400bps, according to BofA. Two prior instances were Jan 2018 (399bps) and Sep 2018 (394bps), after which the S&P 500 posted -10% and -20% peak-to-trough declines, respectively.

So what - if anything - should one buy according to BofA? According to Subramanian, pick "small over large, cyclicals over defensives, capex over consumption, stocks over bonds." Given Subramanian's positive outlook on economic and profits growth, plus the potential for a big recovery in capex, she prefers "areas tethered to GDP and capex."

Se voi, amici lettori, non eravate informati di questi recentissimi sviluppi, e se in particolare sui cinque punti citati qui sopra il vostro amico (che sia promotore finanziario, oppure consulente, oppure wealth manager, oppure private banker, oppure family banker) non vi ha fornito neppure una minima informazione, allora farete bene a chiamarlo subito, già domani lunedì, e capire che cosa ne dice, lui, dei cinque punti citati nel testo che avete letto più sopra.

Con l’occasione, potete a quel punto aggiungere qualche domanda anche suil grafico che segue qui sotto, e sul secondo articolo che Recce’d vi propone in lettura, più in basso in questo medesimo Post.

Come abbiamo più volte messo in evidenza, in Post precedenti delle ultime settimane, rimane ad oggi del tutto incomprensibile la ragione per la quale, a fronte di una raccolta di dimensioni che non hanno precedenti dei Fondi Comuni Azionari, le Borse globali fino a questo punto dell’anno siano salite soltanto dell’8% nel 2021.

Incomprensibili anche le ragioni per le quali gli investitori finali abbiano riversato tutti quei soldi in Borsa: fino a prova contraria, si investe per guadagnare. Che cosa pensano di guadagnare, tutti questi investitori, dalle Borse nel 2021? E sulla base di quali scenari, di quali motivazioni?

Come insieme abbiamo visto e commentato, in più occasioni tra il 2007 ed oggi, anche qui nel Blog, il modo nel quale si muove l’industria del risparmio è sempre il medesimo: portare tutti dentro, attirare tutti gli investitori nella rete, per poi … annunciare a tutti che non c’è più nulla da guadagnare.

E’ la tecnica della tonnara: prima tutti dentro alla rete, e poi si va di fiocina.

Quietly, one bank after another is telling its clients that the music is about to end.

It started with Morgan Stanley, whose chief equity strategist Michael Wilson over the weekend said that while the S&P 500 has continued to make new all-time highs, "underneath the surface, there has been a noticeable shift in leadership which could be telling us something about the reopening that may not be obvious." More specifically, the Russell 2000 small cap index has underperformed the S&P 500 by 8% since peaking on March 12. While this follows a period of historically strong outperformance, when relative strength like this breaks down, Wilson said that he has taken notice. Furthermore, some of the cyclical parts of the equity market we have been recommending for over a year are starting to underperform, while defensives are doing a bit better. If that weren’t enough, indices of IPOs and SPACs have underperformed by 20% and are both down for the year.

But wait, there's more: as the once most bullish Wall Street analyst warned, the breakdown of small caps and cyclicals is "a potential early warning sign that the actual reopening of the economy will be more difficult than dreaming about it" as small caps and cyclicals have been stellar outperformers over the past year. In essence, they were discounting the recovery and reopening that we are about to experience. However, "now we must actually do it and with that comes execution risk and potential surprises that aren’t priced."

And here a big problem emerges: while policymakers have provided tremendous support for the economy with both monetary accommodation and fiscal stimulus, the lockdowns have reduced supply, destroying it in some cases, and sending prices soaring while hammering profit margins.

As a result, we are now seeing evidence of supply shortages in everything from materials and logistical support to labor. The punchline is that 1Q earnings season may bring bad news on costs and margins, particularly with respect to 2Q outlooks. We’ve been writing about this risk for weeks and believe it will be idiosyncratic in how it plays out, with some companies executing well while others don’t.

Meanwhile, the underperformance in IPOs and SPACs is to Wilson "a signal that the excessive liquidity provided by the Fed is finally being overwhelmed by supply" who ominously notes that his experience is that "when new issues underperform this much, it’s generally a leading indicator that equity markets will struggle more broadly." When combined with the fact that leverage in the system is very high, it could spell more trouble for riskier, more speculative investments, he concludes.

Morgan Stanley's concern was repeated by Bank of America whose chief quant and equity strategist Savita Subramanian today published a piece titled "Five Reasons To Curb Your Enthusiasm" in which she said that "amid increasingly euphoric sentiment, lofty valuations, and peak stimulus, we continue to believe the market has overly priced in the good news. We remain bullish the economy but not the S&P 500."

She then listed 5 reasons why stocks are priced to absolute perfection and reality will most likely disappoint, including: i) the bank's sell side Indicator < 1ppt away from euphoria; ii) S&P 500 valuation indicates paltry (2%) returns over the next decade; iii) Outsized (2+ std dev) returns precede losses 75% of the time; iv) BofA's Fair Value model spits out S&P 500 at 3635, v) the Equity Risk Premium dropping below 400bps – this is only the third time since the global financial crisis that the ERP dropped below 400bps, and the two prior instances were Jan 2018 (399bps) and Sep 2018 (394bps), after which the S&P 500 posted -10% and -20% peak-to-trough declines, respectively.

Bottom line: while an amused Subramanian jokingly notes that in another measure of Wall Street bullishness: "we’re tied for last place among strategists’ forecast for the S&P 500", she is quite happy with her year-end S&P500 target of 3,800, some 9% below today's closing price.

And now a third bank has joined the ominous chorus. In a recent note from Deutsche Bank's chief equity strategist Binky Chadha, "When Growth Peaks", he writes that historically, qquities have traded closely with indicators of cyclical macro growth such as the ISMs (correlation 73%), and growth (ISM) typically peaks around a year (10-11 months) after recession ends, "right at the point we would appear to be."

As a result, "very near term", Deutsche Bank expects equities to continue to be well supported by the acceleration in macro growth, and see buying by systematic strategies and buybacks driving a grind higher, however, the bank also now expects a "significant consolidation (-6% to -10%) as growth peaks over the next 3 months."

The chart below shows a strong correlation between the ISM and equities and the simplified view is that when the ISM peaks a correction is likely. As noted above, Binky’s team has identified 36 peaks in the ISM in the post-WWII period. Two-thirds of these peaks (24) were an inverted-V shape, while the rest (8) saw the ISM stop rising and flatten out at an elevated level.

Excluding episodes of a declining ISM that eventually ended in recessions, which currently appears unlikely and which led to far lower stock prices anyway, the S&P 500 sold off around these growth peaks by a median of -8.4%. But even episodes which saw the ISM flatten out rather than fall, saw a median -5.9% sell-off.

Finally, and perhaps most importantly, in terms of timing the sell-off began a median 2 weeks after the peak in the ISM and lasted for a median of 6 weeks.

Although using historical experience as a guide argues for a near -6% pullback if growth flattens out near the peak, given positioning is unusually elevated so early in this expansion, Binky thinks the correction could be materially larger than average and in the 6-10% range.

The good news is that with that hiccup out of the way, things return back to normal, and after this correction, the DB strategist says that "the ongoing strong growth means that equities will rally back" and later in the year the risks are mostly based around inflation and the Fed’s response.