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While Deutsche Bank's Aleksandar Kocic already made the argument that the US economy finds itself in an odd "quantum superposition" state, where like Schordinger's Cat, it is both booming and headed for a recession, one can make a similar argument about two other key aspect of capital markets: stocks and liquidity.
While global equity markets have surged in 2019, rebounding strongly from their 2018 sell-off and the more recent slump in May, SocGen's Andy Lapthorne reminds us that stocks, too, now exist in two separate worlds: consider that while the overall MSCI World index has added 6.5% in June - its best month in decades - and is up 15.6% in 2019 with most markets doing well, "it is worth reminding ourselves that apart from the US, Hong Kong, Finland and Switzerland, the remaining MSCI indices in USD terms are still well below their January 2018 highs."
Breakdown - Performance - Divergence - SocGen - Strategist
However, even more important than the geographic breakdown of performance is a divergence that the SocGen strategist observes in terms of company size, and specifically how it affects both company returns and liquidity.
As Lapthorne writes in a Monday note, "there have been quite a few headlines recently surrounding “liquidity issues," which he finds surprising given the strong performance of asset markets this year:
Investors - Sign - Problem - Investors - Exit
"That investors flee at the first sign of a problem appears to confirm that investors are shuffling towards the exit door, in anticipation of a need to leave the party in haste."
But, as he adds, there are other dynamics in play.
Lapthorne - Attention - Barometer - Versus - Market
First and foremost, Lapthorne brings attention to a key barometer he watches, which is equal-weighted versus market cap-weighted performance, because "Not only as many our quant models tilted towards an equal-weighted structure,...
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