On Tuesday, the leading US stock indexes opened lower, but a few minutes into the trading day, investors sent the Nasdaq up. At 17.10 they look like this:
- The collective index S&P 500, which consists of 500 of the largest listed companies in the US, falls 0.1 percent
- The Nasdaq Composite, which is dominated by technology companies, rose 0.2 percent
- The Dow Jones Industrial Average, which is made up of 30 hand-picked supposedly important stocks, fell 0.2 percent
Measured in local currency, global shares have risen by around 20 per cent since the bottom last autumn, an increase which has been explained, among other things, by lower inflation figures and a fall in market interest rates.
– We believe that is not consistent with the picture that will fundamentally emerge. The market is pricing in sunny days, which we don’t think will be as sunny. We believe that growth will decrease and that this will affect the companies’ profit margins, and that the market has not taken this into account to a large enough extent, says portfolio manager Shakeb Syed at DNB.
Syed is part of DNB Asset Management’s team for tactical allocation, which manages approximately NOK 180 billion. Tactical allocation involves a short-term perspective, where you turn towards the asset classes and sectors that you think will give the best returns in the coming months.
The DNB managers have long been underweight shares, but now they have halved the degree of underweight and have bought into riskier markets and sectors.
– We have been very active and made a number of major changes in the last two months. We have been buying shares throughout January because the rise in interest rates, which has been the biggest brake on the stock market, now seems to be coming to an end. We believe that short-term interest rates are close to a peak and that long-term interest rates have passed a peak, says Syed.
Sees signs of weakness
Market interest rates have, however, made a swing up again after Friday’s inexplicably strong labor market report. Job growth was far higher than expected, and unemployment fell further to its lowest level in 53 years.
Syed states that the figures were exceptionally strong, but at the same time points out that the January figures are often affected by seasonal factors.
– In January of this year, we had another factor with many striking workers who returned to their jobs. Therefore, we think it will be useful to see this January figure in the context of the next two months, to see if we get any adjustments. Our assessment is still that the labor market in the US will weaken more clearly in the future, as interest rates work with large time lags, says Syed.
In addition, the purchasing manager index ISM proved far stronger than expected on Friday, but this also needs to be nuanced, Syed believes.
– The ISM for the service sector was strong, yes, but it must be seen in the context of the fact that there was an equally abnormal drop in December. If you look at December and January together, the level is roughly unchanged, and the trend is still clearly downward. It seems likely that the ISM figures will weaken further in the future, he says.
Emerging markets and energy
The DNB managers are now overweight in European shares, but also in emerging markets. An emerging market is a term for a country that is on its way to becoming a developed market, such as China, India, South Africa and Brazil.
The DNB administrator believes in dollar weakening, aid from China and continued falling food prices – three factors which, in isolation, should be positive for emerging markets.
The fourth reason is that the pricing is attractive compared to the global stock market, which is dominated by the US.
– There is little doubt that the USA is the most expensive region. Although the stock market has fallen from its peak, it has not come cheap. They have taken the air out of a pricing bubble, but it has not gone from expensive to cheap, says Syed.
The managers retain the preponderance in energy, which has long been the sector in which they have bet most heavily.
– We have been part of the upswing, and believe it is still a very good sector to own. Oil and gas prices have fallen, but at these levels the sector is still making good money.
Not necessarily positive
Several members of the US central bank, including central bank governor Jerome Powell, will give speeches on Tuesday. This falls under the important monetary policy tool “forward guidance”, where signals are given about what the central bank intends to do in the future. In this way, Fed members can talk market interest rates and inflation expectations down or up.
Neel Kashkari, president of the Minneapolis Fed, says on Tuesday that he wants an interest rate peak of 5.4 percent. Today, the key interest rate is in the range 4.5-4.75 per cent.
The Fed members have long insisted that the key interest rate should be raised to above five percent and kept there until the end of the year, but they have struggled to convince the market, which believes in two interest rate cuts in the second half of the year.
– If the Fed were to retreat and not raise twice and actually start cutting interest rates earlier, it would not necessarily be positive news, because it has already been priced in, says Syed. (Terms)Copyright Dagens Næringsliv AS and/or our suppliers. We would like you to share our cases using links, which lead directly to our pages. Copying or other forms of use of all or part of the content may only take place with written permission or as permitted by law. For further terms see here.
