Here’s the market reaction to the shutdown of (some of) the US government:
- Benchmark US 10-year Treasury yields rose 0.05 percentage points immediately
- The dollar index fell 0.4 per cent immediately
- US equities dropped 0.6 per cent in the build-up yesterday, but the fall was still less than the 0.73 per cent fall in developed world equities.
- The e-mini S&P 500 futures contract is up 0.4 per cent since the shutdown took effect at midnight in Washington
All of which suggests that investors really aren’t that bothered. Here is conventional wisdom on why:
To answer the question of who owns corporate America, we turn naturally enough to Goldman Sachs. In spite of all the “vampire squid” hype, the answer isn’t GS: but it does have an excellent summary of how ownership has changed (click on the chart for a bigger version).
Goldman Sachs’ strategists are currently roaming Europe on their annual Global Strategy roadshow. As nobody can lightly ignore what Goldman is saying, the themes emerging from the London event were interesting.
Of particular concern are the prospects for corporate earnings; Japan; and the hope that 2013 will at last be the year for a “great rotation” out of bonds and into stocks.
On earnings, David Kostin, their US equity strategist, explains their view in the video below. In a nutshell, margins are high, but without a recession (which nobody expects) there is no need for a sharp reversion to the mean. Instead, forces such as shale gas will help profitability, but there will be little increase in margins as in many sectors they are already at historical highs. So margins stay at their plateau, and earnings rise gently thanks to the gentle recovery of the economy.
On Japan, bullishness is what might almost be called a “consensus contrarian” call. Many people are talking bullishly about Japan, despite its decades of under-performance. So many, indeed, that it is hard to call this call contrarian any more.