Q3 equity market outlook: too little, too late?

Central banks have started to act in the face of accelerating inflation, but is it too little, too late? Here, the Concentrated Alpha equity team look at four key indicators that provide insight as to where we may be headed next.
 

Equities 14 Jul 2022 2 min read
Max Anderl
Head of Concentrated Alpha Equity

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  1. US consumer confidence
  2. US housing activity
  3. Supply chains
  4. Purchasing Managers Index (PMI)
 

US consumer confidence fell to the lowest level in 16 months. Higher energy prices will have a negative impact on households’ purchasing powers.

US Consumer Confidence Index

Source: FactSet, as at 30 June 2022.

The Consumer Confidence Index reflects prevailing business conditions and likely developments for the months ahead. This monthly report details consumer attitudes, buying intentions, vacation plans, and consumer expectations for inflation, stock prices, and interest rates. Index is rebased to 100 as at 1985.

 

US housing activity is starting to slow down due to higher financing costs

National Association of Homebuilders Housing Market Index

Source: National Association of Home Builders, as at 30 June 2022.
Note: The NAHB/Wells Fargo HMI is a weighted average of three separate component indices: Present Single-Family Sales, Single-Family Sales for the Next Six Months, And Traffic of Prospective Buyers. An index is calculated for each series by applying the formula “(good – poor + 100)/2” or, for Traffic, “(high/very high – low/very low + 100)/2”. A reading above 50 indicates that more builders view conditions as good than poor.

US housing activity has slowed since November 2020, as shown by the National Association of Home Builders Housing Market Index

 

We are seeing signs of inflation of goods rolling over. Supply chain bottlenecks are easing based on the market indicators below.

 

World container freight benchmark vs. Baltic Dry Index

Source: BCA Research, Manheim, ISM, Bloomberg Finance as at 30 June 2022.
Baltic Exchange Ltd, Bloomberg Finance LP, Drewry Shipping Consultants, shown in USD per forty foot container.

World Container Freight Benchmark versus the Baltic Dry Index, both easing since the end of 2021.

ISM Supplier Deliveries Index

Source: BCA Research, Manheim, ISM, Bloomberg Finance as at 30 June 2022.
ISM = Institute for Supply Management

ISM Supplier Deliveries Index for manufacturing and non manufacturing deliveries has been dropping since the end of 2021.

Ports of LA and Long Beach: no. of ships backed up

Source: BCA Research, Manheim, ISM, Bloomberg Finance as at 30 June 2022.
Marine Exchange Southern California, includes ships at anchor in ports and those waiting beyond the ports safety and air quality area following new queue regulations implemented on 16 November 2021.

Level of ships which are backed up in the ports of LA and Long Beach has dropped since the beginning of the year.

Used car prices

Source: BCA Research, Manheim, ISM, Bloomberg Finance as at 30 June 2022.
Manheim Used Vehicle Value Index, rebased to 100 as at January 1995.

Chart shows used car prices as shown by the Manheim Used Vehicle Value Index, starting to come down over the past month.

 

Purchasing Managers Index (PMI): Central banks’ efforts to contain inflation are backward-looking and are reigniting fears of a recession

 

 

Global Manufacturing Purchasing Managers Index (PMI)

Source: FactSet, as at 30 June 2022.

Purchasing Managers Index (PMI) has been trending lower over the past year but remains in expansion.

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