ich hab den von bloomberg angesprochenen goldman report rausgesucht - zusammenfassung:
Why
this is more than a bear market rally
The market is up 28% from its lows; many investors
believe
it is just a bear market rally. We think there is more upside, at
least in the short
term, as inventory re-stocking and survey
data suggest stronger activity data ahead. After that,
deleveraging
and a slow economic recovery is likely to bring a
pause. But long term, valuation
points to strong returns.
The mirage of percentages: 28% rally means about flat
year-to-date
The 28% rally masks the fact that the Stoxx 600 is up just 2% year-to-date
and still down 50% from the peak. This type of rally out of the trough is
common historically, and
suggests there could be further upside. We find
that following the 18 ‘large’ bear markets in
history, the return of the initial
rally is 43% and it lasts 180 days, although there has been a
wide variation.
We reiterate our year-end target of 235 for the Stoxx 600 (16% upside),
implying the pace and extent of the ongoing rally will be more moderate.
Short term:
Fundamentals likely to drive the index higher
We believe the rally can extend for as long as
the fundamental data shows
improvement. The equity market has been positively correlated with
indicators such as the GLI and the ISM historically. In fact, the strongest
gains tend to occur in
the initial period, e.g. when the ISM moves from the
trough back to 50. Recently, we have added a
pro-cyclical tilt to our sector
and country recommendations. In addition, the recent improvements
in
the credit markets indicated by our proprietary Financial Stress Indicator
and corporate
spreads are positive.
But after that, things are a bit less clear
Just because we
are positive short term does not mean that there are no
further risks – we highlight four: (1)
near-term issuance is a potential
downside catalyst for the market, although there is still a lot of
money on
the sidelines which could help absorb it. (2) The fundamental
improvement is more
driven by an inventory build and fiscal stimulus;
positive growth momentum may fade, resulting in
the market getting stuck
in a trading range next year. (3) Deflation also remains a significant risk
to
the downside, although this is not our core view and the probability is
lower than it was
earlier this year. (4) Current valuation looks less attractive
than it did earlier this year, but
for those with a long-term view, we believe
annualized returns should be quite high over the next
five years.
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der
ganze bericht
Why this is more than a bear market rally
At the end of last year, we
argued that equities had downside risk as the market had not
yet fully reflected the severity of the
fall in profits. However, we thought that once certain
pre-conditions were met, equities could rally
30%-50% over a 6-12 month period from that
lower level, which we expected to be in 2Q or the middle
of the year. The signposts that
we mapped out in Inflection Detection 2009 (December 4, 2008) were
(1) attractive
valuations, reflecting the severity of the profit collapse, which we forecast to be
-38% in
2009 for Europe, a fall of 55% from the peak; (2) signs of stability in the economic cycle;
(3)
improvements in the corporate credit market, and (4) signs that the market could shrug off
bad data points.
Although the current rally started earlier than expected, it is clear that
it is different from
the other ten rallies that have occurred since the credit crunch started in the
summer of
2007 – namely, it is the first to be supported by fundamentals and valuation, indicating
that
our pre-conditions had been met. Over the course of the past few weeks, many investors
have expressed their distrust of the rally given the ongoing de-leveraging of banks and
personal
sector balance sheets (particularly in places like the US and UK) and concerns
that the market has
moved too far ahead of what may be no more than a short-lived
inventory correction.
While
markets have moved a great deal in percentage terms, and even more so in the case of
many stocks,
this masks the bigger picture. The percentage move from the trough is not
really of relevance –
many stocks had reached close to option value at the bottom and could
make huge percentage gains, as
investors perceive that the companies are going concerns.
In fact, the move we have seen is smaller
than the typical market moves that emerged from
the troughs of other deep bear markets. It is worth
noting that even after the recent rally,
the Stoxx 600 is just up 2% year-to-date and still down 50%
from the peak.
In addition, benchmarking the movements in equities to the fundamentals is not easy,
as
an assessment also needs to be made of valuation. Our Macro Trading Strategies
colleagues
have argued that while the market has paid for the recent improvements in the
macro data, it has not
necessarily paid up for the further progress we expect over the next
few months (see Tradewinds:
Stabilization being reflected across assets, May 5, 2009).
This view is also supported by our
analysis comparing the movement in equities sectors to
macro leading indicators, such as the GLI and
ISM. We find that the market tends to 'front
load' future returns in such a way that the strongest
part of the typical bull market is during
the phase when economic and profit growth is still
negative, but the deterioration is
slowing. The period, for example, when the ISM goes from its
trough towards 50 (still
consistent with economic contraction) generally delivers much higher
annualised
returns than during the phase when the economy starts expanding again and profits
grow.
What we are not arguing is that there are no further problems to deal with, or that
the
recovery in the market from here will take the form of a strong, almost uninterrupted boom
for several years. The issue of de-leveraging may complicate the path for recovery in
activity and
at least moderate its pace. But, as we argued in Forecasting returns: ‘Fair
Value’ Part II,
March 23, 2009, the crucial determinant of future returns is actually not the
rate of profit growth,
or even GDP, but the price at which you buy equities at the outset.
Buying when the risk premium is
unusually high, as is currently the case, suggests that
future returns are likely to be good and
significantly above the returns available in cash
and bonds. It is possible, and even likely, that
the market will stall at some point later this
year or next, even as profits and economic recovery
(which the market itself is currently
beginning to price in) actually emerges. But we have time yet
to prepare for this and, in the
meantime, we would argue that the general direction for markets
remains higher.
The mirage of percentages: 28% rally means flat year-to-date
The 28% rally that has occurred masks the fact that the Stoxx 600 is just 2% year-todate
and still
down 50% from the peak on June 1, 2007. Put into context, the recent rally
is the largest move we
have seen thus far since the bear market started, and it is also the
longest. While it is true that
markets have moved a great deal in percentage terms over a
short period of time and certain stocks
have moved even more, we believe this is hardly
the point. The percentage move from the trough is of
little more relevance than the
percentage move from the previous high. It assumes that we were
priced ‘correctly’ at the
starting point, while in reality, we had probably overshot both on the
upside at the peak
and on the downside at the trough.
This type of rally out of the
trough is common historically and suggests there could be
further upside. Looking at previous bear
markets, we find that equities usually have their
strongest returns right out of the trough – the
typical move up, prior to any correction (of
10% or more), is 43% over a period of 180 days. There
is obviously a large degree of
variation between different periods. For example, the shortest run
was in Germany in 2003,
when the market rallied over 20% in eight days before selling off 10%, while
the longest
was when the US rallied 230% basically uninterrupted for close to five years in the
early
1990s.
What is interesting to note is the fact that this initial strong rally from
the trough tends to
occur regardless of what corporate profits are doing at the time. We find that
on average,
the earnings recovery in the 12 months following the trough of the market is -1%, and
in
many cases is quite negative. This implies that the initial move is much more driven by an
increase in risk appetite, which drives market prices via multiple expansion as opposed to
by
earnings growth. It is not uncommon for the market to stall for a while after
this initial phase as
it gets stuck in a trading range for a while – as experienced
for example between March 2004 and
March 2005. We think this prospect is
quite likely for a period, perhaps through next year.
Sector rotation has been dramatic, but not unusual
Once you drill down beyond the market
level, the percentage returns look even more
striking. Banks (the best performing sector in the
current rally), Insurance and Financial
Services are up at least 50% since the rally started.
Despite this huge move, however, they
remain some of the worst performing sectors since the trough
in June 2007
This pattern of performance in the initial stages of recovery is not unusual.
There are
precedents for the sector where things are most bad leading the initial stages of a
market
recovery. The two examples which are clearest are the technology stocks in the 2002-03
period and Japanese banks in the early 1990s.
In both the case of tech in 2000-03 and
Japanese banks, these are the sectors that were
among the leaders in their respective booms and were
most badly hit when the bear
market struck. But also in both cases they were initially the leaders
out of the bear market.
In the three months after their respective market troughs, the technology
sector
outperformed by 27% and Japanese banks by 19%.
The current market structure is not
an impediment to a further rally
The composition of the market has changed dramatically since
the downturn started. At
that point, Banks were by far the largest sector, comprising over 20% of
the market, more
than twice the size of the next largest sector. The trough represents a
dramatically different
picture – Banks comprised just 9.8% of the market, third behind Oil & Gas
and Health Care.
At the current time, they are back to being the largest sector.
Defensives picked up share largely from the Financial sector as opposed to Cyclicals. In
relative
terms, Cyclicals lost just 60 bp from the peak to the trough of the market, while the
weight of
Financials halved from 31.7% to 16.5%.
One question we are often asked is whether the market can
show large gains given that
Defensives are now such a large part of the composition. We do not think
this is an issue
for two reasons: (1) there were similar weights at the previous trough (2003), and
the
market rallied close to 150% from its low until the peak in 2007; while Defensives
underperformed the market, they did post a positive return as well, and (2) the majority of
defensive sectors look fairly inexpensive on a number of valuation metrics, something we
have
pointed out in the past (see Strategy Matters: Cyclicals: A roadmap for recovery,
February 20,
2009). The key reason we downgraded some of these sectors is not because
we necessarily see
downside, but because we see more upside in Cyclicals.
Short term: Fundamentals likely to
drive the index higher
Although the current rally started earlier than we expected, it is
clearly different from the
ten other rallies that have occurred since the credit crunch started in
the summer of 2007 –
namely, it is the first one to be supported by an improvement in economic
data,
specifically survey data like the ISM in the US and PMIs in Europe. Using the checklist
that
we set out at the end of 2008, we see improvement on all fronts: (1) attractive valuations,
reflecting the severity of the profit collapse. We forecast earnings to fall -38% in 2009 for
Europe, which represents a fall of 55% from the peak; (2) signs of stability in the economic
cycle; (3) improvements in the corporate credit market, and (4) signs that the market could
shrug
off bad data points.
The obvious question at this point is whether the market has already
fully discounted the
improvement or whether there is more to go. We believe that there is more
upside from
here, which stems from further improvement in the economic data and also support from
the credit markets. In addition, it appears that participation in the rally was limited, and the
amount of cash on the sidelines suggests that inflows could continue to be supportive.
Economic indicators have improved
Our economists believe that we are now past the low point
in the economic cycle,
although in most regions we are still far from expansionary territory. The
Goldman Sachs
Global Leading Indicator (GLI) has shown two months of sequential improvement for
the
first time since 2006 and the momentum component has moved into positive territory.
Two other data points have made us more positive as well. First, the ‘guts’ of some of the
data reports point to further strength ahead. One in particular is the New Orders/Inventory
ratio,
comprised of components of the ISM in the US and the PMIs in the UK and Europe.
Particularly in the
US and UK, this ratio has turned up quite sharply, implying that new
orders have been increasing
faster than inventories, and in some case inventories have
been drawn down (see Exhibit 9). This is
typically a leading indicator for the overall index,
as it implies that companies will need to ramp
up production in order to fill these orders.
Our economists believe that the ISM will likely reach
50 in the next 3-6 months.
The other encouraging factor is the breadth of improving data
around the world. Our
economists have published their ‘green shoots diffusion index’, which
shows on balance
how much data is improving vs. deteriorating, ignoring the magnitude of the
improvement.
While it appears that the market has moved to reflect the improvement in the
underlying
data, what is less clear is whether it has moved ahead of it. Historically, the
correlation
between the ISM and the overall European market has been quite strong (correlation of
56% since 1990), and even stronger in recent years.Our
economists expect the ISM to move to 50 in
the next quarter, suggesting that the
movements so far in the market and across sectors have further
to go.
Similarly, we find that the market tends to 'front load' future returns in such a way
that the
strongest part of the typical bull market is during the phase when economic and profit
growth is still negative, but the deterioration is slowing. The period, for example, when the
ISM
goes from its trough towards 50 (still consistent with economic contraction) generally
delivers much
higher annualised returns that during the phase when the economy starts
expanding again and profits
grow
Looking at sector data, a similar picture emerges, showing some rotation into
cyclical,
such as Tech, Retail, Construction & Materials, from defensives such as Utilities and
Telecom. While there are exceptions (Food & Beverage and Personal & Household Goods
have done well
historically during this period), some rotation is evident.
Credit markets show significant
improvement
Credit markets represent one other area of significant improvement that makes us
more
confident we’ve seen the lows in the equity market. Perhaps most important are the
positive developments in the functioning of money and credit markets, where the distress
premium
across assets has almost completely eroded. Our Financial Stress Index (FSI) is
now at the lowest
level on a cyclically-adjusted basis since the beginning of the credit
crisis in August 2007. This
index includes four factors related to the degree of impairment
of financial markets: counterparty
risk (US dollar 3-month LIBOR-OIS), liquidity risk (MBS
to treasury repo differentials), refunding
risk (commercial paper outstanding) and broader
risk aversion (percentage of monies held in money
market mutual funds in relation to
equity market capitalization). While the recent improvement is
largely due to the increase
in risk appetite, indicated by money market mutual fund outflows, there
has also been
improvement in other metrics as well.
In addition, both investment grade
and high-yield credit spreads, both cash (bonds) and
synthetic (CDS), have fallen quite dramatically
from peak levels earlier this year. As a result,
the risk premia for credit has fallen, and
doesn’t look as attractive now vs. equities as it did
late last year. On an absolute basis,
equities look the most attractive of the asset classes.
On a risk-adjusted basis, investment grade
bonds (cash) look more attractive, but we
suspect this is largely due to the illiquidity of the
index. Risk premium on the CDS
investment grade indices does not look nearly as attractive, both on
an absolute and riskadjusted
basis (See Relative Value in credit & equity, May 1, 2009).
Even more significant is the improvement in primary market issuance, both in the US and
Europe in
recent weeks. While debt issuance picked up at the beginning of this year, it was
limited mostly to
high-quality investment grade issuers or to Financials that were issuing
government-guaranteed
bonds. However, in recent weeks, more cyclical investment-grade
issuers and, even to a certain
extent, high-grade issuers, have been able to come to the
market for funds
Bad news is
being absorbed by the market
We have long argued that an important prerequisite for a
sustained recovery in equities is
that the market is resilient to, and even rallies on,
disappointing news. For much of the
second half of 2008, both macroeconomic data points and company
results were worse
than consensus expectations and the market generally weakened on the news.
There are indications that this too has turned for the better. Generally speaking, the 1Q
earnings
season was not that remarkable – in the US, there were roughly the same number
of
positive/negative surprises as prior quarters, and in Europe, where data is more sparse,
there have
been the same number of positive and negative surprises. Earnings estimates
have continued to fall
in April, although not by nearly as much as they have since last
September
However, what
is interesting is how the market has shrugged off revisions in recent weeks.
We find that the
correlation between sector performance and earnings revisions has fallen
back to very negative
levels, and actually close to -1.
Part of the reason for this is likely that bottom-up
consensus earnings revisions have been
behind-the-curve this cycle. Therefore, while results appear
to be missing consensus
estimates, investors are using more conservative numbers and the same result
may be a
positive surprise to them. As a result, even downward revisions and negative surprises
can
be met with a positive market response.
This is not necessarily that surprising at
this point in the cycle, as the market typically
turns before earnings. The correlation between
market returns and earnings growth is
highest if we lag earnings by 4-5 months (one to two
quarters).
But not smooth sailing ahead
It is possible, and even likely, that the
market will stall at some point later this year or
next, even as profits and the economic recovery
(which the market itself is currently
beginning to price in) actually emerges. But we have time yet
to prepare for this and,
in the meantime, we would argue that the general direction for markets
remains
higher.
What we are not arguing is that there are no further problems to deal
with, or that the
recovery in the market from here will take the form of a strong, almost
uninterrupted boom
for several years. There are still many outstanding issues that need to be
resolved before
we think that a sustained bull market will take hold. Some specific issues that are
of
particular concern include: (1) the large amount of equity issuance occurring, (2) as the
momentum from the inventory re-build and government stimulus fades, it is still
questionable
whether consumption and demand will pick up the required slack, (3) the
banking system still has a
large degree of de-leveraging to do, which has the potential to
lead to entrenched deflation, and
(4) valuation is not nearly as attractive at this point, given
the underlying fundamentals.
The issue of de-leveraging may complicate the path for recovery in activity or at least
moderate
its pace. However, in the long term, we still expect strong returns. As we set out
in Forecasting
returns: ‘Fair Value’ Part II, March 23, 2009, the crucial determinant of future
returns is
actually not the rate of profit growth, or even GDP, but the price at which you
buy equities at the
outset. Buying when the risk premium is unusually high, as is currently
the case, suggests that
future returns are likely to be good, and significantly above the
returns available in cash and
bonds.
Supply vs. Demand
Issuance across the equity, credit and convertible areas
have picked up dramatically over
the last few weeks, with investors seemingly using new issues as a
way to increase their
exposure to risky assets. One thing that we would be looking for is for
ongoing issuance to
be well-received. As companies try to address problems in their funding, we
believe the
market will see €100-300 bn of new equity supply, ex-financials. (See Strategy
Matters: Reequitisation:
Equity supply set to rise in 2009 and 2010, January 29, 2009).
We believe that financials also might still need to raise substantial funds. There has
already
been a large number of rights issues in Europe, and following the stress-test in the
US, our banks
analyst expects a large amount of capital to be raised to either plug capital
holes or repay
TARP.
Issuance alone does not necessarily mean that the market rally will break. Historically,
the
performance of rights issues was heavily dependent on where we were in the economic
cycle.
For example, in 1993, there was a sharp rise in equity supply and the market rose
40% and those
companies that issued shares performed well.
On the flip side, there is still a large amount
of money on the sidelines. As mentioned
earlier, the amount of money in money-market mutual funds in
the US is off its peak, but
still very high, both in terms of absolute dollars, but also as a
percentage of the S&P 500.
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