In his latest Weekly Kickstart note, Goldman Sachs strategist David Kostin says clients remain focused on one thing: Monetary policy and fiscal policy.
This is in spite of the fact that we’re in the throes of earnings season, which, one would thing, would be a good opportunity for clients to focus on what’s going on with individual companies they’re invested in. Not so much.
Profit results outside the Financials sector have been lackluster with 2Q EPS falling 1% on a year/year basis. Information Technology firms have generally disappointed and the sector has lagged, returning 4% during the past month and 10% YTD. In contrast, Financials firms have thrived. EPS soared by 34% versus 2Q 2012 and the sector has outpaced the market, returning 8% during the past month and 27% YTD. Our banks research team notes that corporate loan demand is improving and pipelines are building, while construction lending to housing continues to increase and spending volume has accelerated, particularly at the high end.
Although it is reporting season, recent client inquiries have not focused on corporate results. Instead, investors have sought perspective on monetary and fiscal policy risks to the equity market and the proverbial “great rotation” from bonds to stocks. As we noted last week, our Rotation Index signals the strongest risk appetite in five years as domestic equity funds have received $34 billion of inflows since the start of June vs. a $45 billion outflow from taxable bond funds.
Since the end of the crisis, investors have been remarkably macro focused. That obviously hasn’t changed.
At least now, eagerness to invest in stocks is on the rise, as evidenced by the upsurge in inflows into stock funds that Kostin is talking about.
As for the Fed, not only is there plenty to talk about with regards to tapering and all that, but for the next couple of months, there should be plenty of interest in who the next Fed chief will be, and what kind of impact they will have on the economy.
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