There are some imbalances after the pandemic. This is especially true in global supply chains, as well as rising wage growth and rising inflation. This is something you should pay close attention to, says Nora Damas, portfolio manager at Pensum Group.
Recently, the prices of raw materials have risen, and many companies around the world have reported slow delivery and shortage of goods for production.
Despite this, Damos believes there are good prospects for the markets, especially for certain sectors.
– We think the economies look strong, she says.
The strong economic growth after the easing and removal of anti-Corona measures contributed to expectations of tightening monetary policy in the coming period. During the pandemic, many central banks have cut interest rates, and many have introduced crisis measures that include large monthly purchases of securities, to support markets.
The market is now waiting in anticipation of how long the central banks will tighten their monetary policy, and when interest rates will be raised. Norges raised its key interest rate from a record low of zero per cent in September, while the Federal Reserve (Fed) is expected to begin phasing out its supportive purchases in November.
Long-term market interest rates received a boost from levels when the pandemic was at its worst last year. The interest rate on US government debt with a ten-year maturity, often called the “ten-year”, has risen significantly in the past month. The ten-year-old is often referred to as the world’s hottest interest rate, as it is a reference to many interest rates and financial figures around the world.
Some interesting opportunities
Damas believes that the prospect of higher interest rates could provide exciting opportunities in the stock market.
– There will be some fun opportunities. The sectors that will benefit from this are finance, banking, energy and materials. We’ve seen the power of gas and oil lately. The good thing about rotating this sector, she says, is that the cheaper sectors would benefit from such a scenario.
The portfolio manager believes in strong earnings in these sectors, and that there may be dividend payouts for companies in these sectors in the coming years.
– We think that’s where you can see the best return, says Damas.
Are there events in the near future of special significance?
It would be interesting to look at the development of unemployment and employment, the PMI numbers, the inflation numbers, and not least the signals from the Fed about tapering, that is, the phasing out of measures, setting the interest rate, says Damas.
The kick-off of the results season
Next week, a number of new quarterly numbers will be presented.
In recent quarters, US corporate numbers have surprised on the upside, but according to chief strategist Christian Lee at Wealth Management, there is now significant nervousness not only about the third-quarter numbers, but also about what corporate management will say about them. Sales prospects, earnings, margins and not least how inflation will affect future prospects.
Companies have fared much better than analysts expected, but now the uncertainty is greater. The question is what will happen to inflation in the coming period. The US Federal Reserve believes that the inflation we are seeing now is temporary, because they believe it is driven by the pandemic. But if inflation continues for much longer, the Fed will have a problem, Lee says.
He points out that a number of American firms have to pay more for the input factors, and that many employers are forced to raise wages to obtain adequate employment.
The problem arises if prices rise, at the same time that the economy is about to lose ground. And here we are now, he tells me.
Significant drop in growth expectations
Lee points out that if prices rise so much that the fall in the purchasing power of households leads to lower demand, then inflation will affect economic growth.
We won’t be back no later than June, when the real-time indicator of economic growth for the current quarter, “Atlanta Fed Gdp Now,” projected 9.3% quarter-on-quarter GDP growth. He explains that the growth forecast is now 1.3 per cent – a sharp drop in expectations in a few months.
Will the slowdown be reflected in companies’ numbers and data?
“We may face a potential crossroads, and that’s something the markets will follow closely when the full profit season begins,” Lee says.(Terms)Copyright Dagens Næringsliv AS and/or our suppliers. We would like you to share our cases using a link that leads directly to our pages. All or part of the Content may not be copied or otherwise used with written permission or as permitted by law. For additional terms look here.
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