Investors should do this now to protect themselves from a market storm, says Pictet’s manager.


An optimistic start to the week is threatened, with equity futures sloping lower. Some point to a senior regulatory official in China who warned of bubbles forming in the US and European markets and elsewhere.

Whether you are restless or calm, our call of the day, from Julien Bittel, multi-pool fund manager at Pictet Asset Management, now offers one piece of advice for everyone: Diversify that portfolio.

Bittel’s concerns stem in part from what he believes there is no bad news being traded anywhere at this time. “We believe that, given the speculative extremes that are currently occurring, there could be a race to the exit similar to what we witnessed in 1987, where you know the market can quickly drop 30% … in two months,” he told MarketWatch. in an interview.

In a chart storm, he runs through his point of view, starting with stock valuations, which he notes that sometimes they ignore sight earnings “they’re about to explode further.” His chart below covers a variety of valuation metrics that have been closely correlated to future returns since the early 1980s.

“Now what you can see here is that at current valuation extremes, this would suggest that equity returns will be around minus 29% yoy, 12 months from now,” he said. Although for March, annual returns should rise around 55%.

The Bittel chart below shows a composite equity valuation score, currently in the 98th percentile. “So when it’s high, you know valuations are very expensive,” he said. Another way of looking at it, “only 1.4% of the time in the last 40 years have stocks been so expensive” by this measure.

Rising bond yields, which have hit financial markets, is the subject of the chart below. “Here’s the 10Y-2Y US yield curve, it is currently 130 basis points from the curve reversal lows in August 2019,” Bittel said. An investment refers to when longer-term maturities yield less than shorter-term ones.

The last three times this happened was in August 1990, February 2001 and November 2007, and “historically, this degree of post-inversion steepening of the yield curve results in a turning point for equity markets.” , He said.

Squeezing one more pair, the following shows that commodities are the most overbought since March 2008 (see 14-day relative strength index). For those assets to continue to outperform, “the dollar must weaken further and the momentum of global growth must surprise to the upside,” he said.

But he thinks a stronger dollar could be the big surprise for investors this year. The table below tracks an analog from the end of 2017 to 2018 and shows that “the train will officially leave the station in March.”

Finally, you are concerned about this graph that shows the CEOs of the company as the most confident in 17 years. As in, they cannot be much more optimistic.

Two things he sees as likely that many investors miss: a stronger dollar at the end of the second quarter and a surprising global growth momentum to the downside in the second half of 2021. “The real blind spot for me is the impact that this could have on reflation trading, ”he said.

So diversifying is Bittel’s advice, through a multi-component product offering some stocks and bonds, which will benefit in times of surprise growth but will also guard against bad things that happen.

The markets

ES00 stock futures,
-0.13%

YM00,
-0.08%

NQ00,
-0.12%
they are falling after Monday’s bullish session. European shares SXXP,
+ 0.61%
They rose, while Asian markets mostly ended lower, following a bubble warning from Guo Shuqing, director of the China Banking and Insurance Regulatory Commission. Oil prices CL00,
+ 0.46%
are lower, the DXY dollar,
+ 0.08%
is higher, and bitcoin BTCUSD,
+ 0.26%
Prices are going up.

The buzz

Target TGT retailer shares,
+ 1.44%
they are coming up after better than expected sales. In the same sector, the shares of Kohl’s KSS,
+ 3.17%
They are slowly making progress after their results. Information Technology Group Hewlett Packard Enterprises HPE,
+ 0.27%
will report after closing.

Zoom ZM Actions,
+ 9.65%
are on the rise, after the video communications group reported adjusted earnings nearly 10 times higher due to demand for its services related to the COVID-19 pandemic.

All US Apple AAPL,
+ 5.39%
the stores are open to the public for the first time in almost a year.

A senior World Health Organization official cautioned against declaring victory over the pandemic by the end of this year. That’s when global coronavirus cases spiked for the first time in seven weeks last week.

Random readings

Singer Taylor Swift is unhappy with Netflix’s NFLX,
+ 2.19%
“Ginny and Georgia”.

Two fruits, three vegetables a day = a longer life.

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