Focus: The fourth quarter outlook
Markets saw more strength in Q3, with S&P 500 on track for over 3% gain. But crypto, real estate, and commodities have led the rally this year. In Q4 we see lower virus pressures, the well-telegraphed start of Fed tapering, another Q3 earnings beat, temporary political noise from Washington DC, a renewables boost from the COP 26 climate conference, and lower China risks. The twin earnings surprise and dovish Fed market pillars, and our positive 5,050 S&P 500 outlook for next year, remain. We see Q4 sector rotation into Value as growth fears subside and US bond yields rise modestly.
Markets helped by China and Fed
Nervous markets stabilized, with China moving to ease ongoing Evergrande property concerns, and the US Fed delaying its tapering decision. Monthly global PMI growth data showed slowdown concerns may be overdone. Rising US 10-year bond yields boosted Value sectors, financials and energy. See our global markets presentation here for background.
Messages from Burgernomics and gold
Our look at global burger prices reiterates how expensive the USD is. We expect it to gradually weaken, helping assets from commodities, to emerging markets, and US tech. Dollar strength has been one driver of gold’s very weak performance, but also highlights investors’ lack of concern on inflation or of a market correction, and with crypto competition rising.
Opportunities in the music and cars rebound
The $50 billion IPO of no.1 record label Universal highlights the booming music industry, from Vivendi (VIV.PA) to Warner Music (WMG), which rose from ashes on the music streaming boom. We also examine how to invest in electric vehicle growth, with legacy autos, from Toyota (TM) to Volkswagen (VOW3.DE), leading EV leaders, from Tesla (TSLA) to NIO (NIO), this year on the cyclical growth rebound, their accelerating EV transition and rock-bottom stock valuations.
Twitter pushing crypto asset adoption
Bitcoin (BTC) weakened with asset market volatility. Smart contract blockchain Tezos (XTZ) was a notable exception to the broad crypto weakness. Adoption continues to broaden with Twitter (TWTR) to integrate micropayments Bitcoin Lightening into its platform and provide verification features for NFT’s.
Oil rise leads commodity stabilisation
Oil prices rose as US inventories fell to 3-year low in sharp reminder of supply constraints across markets. Broad commodities stabilized on some easing of China growth concerns.
The week ahead: Washington in focus
1) As Oct. 1 federal debt ceiling deadline looms, expect efforts at compromise and government shutdown preparation. 2) China PMI data to be scrutinized as growth slowdown and property pressures built, 3) Fed’s favourite PCE inflation measure in spotlight as they inch to tapering $120bn/month purchases. 4) Quiet earnings week focused on Micron (MU), IHS Markit (UNFI), and Bed, Bath, & Beyond (BBBY).
Our key views: Staying the course
We see a positive outlook of 1) vaccine rollout and economic re-opening, and 2) still huge policy support, offsetting virus third wave and Fed tightening risks. We like assets helped by this growth: equities, commodities, crypto, and are cautious fixed income, and the USD.
Written by a team of experienced financial analysts at eToro.
This content is for information and educational purposes only and should not be considered investment advice or an investment recommendation. Past performance is not an indication of future results.