Gavekal Research

Will Denyer, Tan Kai Xian

Nov 29th 2018

The most cherished gifts often come in small packets, and investors duly cheered just two small words yesterday by the Federal Reserve chairman. In a speech, Jerome Powell said policy rates were “just below” the neutral level. That was a big change from a month earlier when he said they were “a long way from” the not-too-hot-not-too-cold level. This suggests that the pace of interest rate hikes may lessen, while on the same day data was released...

Gavekal Research

Will Denyer

Nov 16th 2018

There is suddenly a flood of commentary speculating that General Electric is a canary in the proverbial coal mine for the US corporate credit market. With investors focused on the troubled conglomerate’s underfunded pension scheme and ailing power business, GE has seen its credit rating downgraded and become a focal point for broader fears that US corporates have taken on too much debt and bought back too much equity. Without taking a view on GE...

Gavekal Research

Will Denyer, Tan Kai Xian

Nov 07th 2018

The Democrats have wrested back control of the US House of Representatives, while Republicans have expanded their Senate majority. Hence, the US’s bicameral legislature is set for two years of gridlock. This was the most benign result possible from this midterm election. While largely expected, confirmation is probably positive for risk assets.

Gavekal Research

Will Denyer, Tan Kai Xian

Oct 29th 2018

Coming after another bruising week in the market, which saw the S&P 500 flirting with correction territory, down -9% from its late-September high, Friday’s third quarter US GDP report is heartening. Although 3Q’s quarter-on-quarter annualized growth rate of 3.5% was slower than the 4.2% rate recorded in 2Q, it was still strong relative to the expected 3.3% and compared with the US economy’s structural growth rate. While US growth will...

Gavekal Research

Will Denyer

Oct 12th 2018

The S&P 500 is down almost -7% in six days, the biggest drawdown since the -10% decline in the first quarter. It is now below its 200-day moving average, for the first time since April 2nd. Will it bounce back, or is a US equity bear market now upon us? I would bet on the former, but not too aggressively.

Gavekal Research

Will Denyer

Sep 14th 2018

In this month’s research call, Will Denyer explains why he is still recommending a 75% equity exposure in a dedicated US portfolio. His call is based on an asset allocation method with three key components, namely, Wicksellian spreads, relative valuation tools, and a duration tool which shows how to divide a fixed income portfolio between bonds and cash.

Gavekal Research

Will Denyer

Aug 28th 2018

Despite cyclical headwinds and the threat of a welfare-sapping trade war, the US consumer has stayed fairly upbeat. The worry has been that rising tariffs change that situation and hit growth. Hence, news of a trade deal between the US and Mexico is to be welcomed (Justin Trudeau may feel differently). Still, at the end of the day the effect will still be to push up costs that someone must cover. For this reason, as the economic cycle matures...

Gavekal Research

Will Denyer

Aug 17th 2018

Every US recession since the mid-1950s has been preceded by a flat or inverted yield curve. The fact that the curve is now fairly pancake-like in form and the Federal Reserve is ratcheting up interest rates has investors on edge. On balance, I conclude that the time is right to get out of US banks, but not to be rushing the exits of the US equity market.

Gavekal Research

Will Denyer, Tan Kai Xian

Jul 31st 2018

Last month, Will and KX asked When To Buy US Bonds? This month, they turn their attention to US equities and devise a portfolio asset allocation model that advocates overweighting stocks against bonds when returns on invested capital and earnings yields exceed corporate funding costs. Back-testing gives an impressive historical outperformance at a reduced volatility relative to the S&P 500. But just as important is what the model has to say...