NEWSLETTER

The expected return is an estimate of the investment return at a specific maturity, based on all available information at a given point in time.

Over the past few weeks, volatility in financial markets has surged, as if investors suddenly recognized that the probability of recession in the coming months is greater than zero. The data that has most alarmed investors’ concerns the labour market.

Phase transitions. More or less what we think is currently happening in the US economy. Phase transitions is a term often used in chemistry (but not exclusively there) to describe the transformation of a substance from one state to another. 

Interest rates are one of the key variables for estimating the Intrinsic Value of the stock market and consequently its expected long-term return.

Those that have been lucky enough to live through the year 2000s tend to always expect the unexpected. It’s a matter of experience

The beginning of 2024 confirmed the trend observed in 2023, the performance of the US stock market is getting narrower by the day, indeed, after the past month we could redefine the S&P 500 and the “Magnificent 7” as the S&P5 and “Magnificent 5”. We explain our reasons below.

At the turn of the year, one of the most frequently asked questions, alongside what our good resolutions are for the upcoming months (which by the way we tend to forget by mid of January…), refers to our expectations for the economy and financial markets. This tendency is driven by the fact that all financial returns reset by the 1st of January. Yet, the economy does not.

In the recent period the market seems to be very confused. The subsequent pairs of charts show that the dichotomy in the macroeconomic data is in stark contrast to the scenario currently discounted by the US equity market.

The movement of the stock market over the past three months is mainly explained by the change in the US 10-year interest rate. The reason is the use of the 10-year US interest rate within many quantitative models to estimate the fair value of shares.