Oil prices jump after Iran says critical Strait of Hormuz to remain shut
Below are some of the most interesting things I came across this week.
Historically, a changing of the guard at the Fed has been a volatility-inducing event.
“Since 1930, the S&P 500 Index has logged average drawdowns of 5%, 12%, and 16% over the one-, three- and six-month periods after a new Fed chief took the helm, according to data compiled by Barclays,” reports Bloomberg.
And while there’s been a lot of talk of the growing threats to Fed independence, there has been little quantitative analysis of the likely consequences of that trend – until now. “When central bank independence weakens, the risks don’t stay theoretical: inflation volatility tends to rise, recession risk can increase, and equity valuations can come under pressure,” writes Bill Hester.
Foreign investors, perhaps most sensitive to the costs borne by the currency as a result of weakening Fed independence, are massively overweight US equities. “A weaker dollar will reduce the weight of American assets in global indices, forcing benchmark-hugging investors to sell them. That will further weaken the greenback, feeding a vicious cycle,” notes The Economist.
Already, the stock market is behaving in a way that suggests a changing of the guard of its own.
“Through January 26, 62% of S&P 500 stocks have outperformed the index, the highest share since 2001. History urges caution. In three of the four prior years when more than 60% of stocks outperformed, the S&P 500 declined, with a median loss of 11.6%,” reports Ned Davis Research.
Apparently, insiders don’t see this rotation as being the bullish phenomenon it is being made out to be by so many pundits. “Almost 1000 executives at roughly 6,000 US-listed firms have unloaded shares this month, compared with 207 who added, resulting in the highest sell-to-buy ratio in five years,” according to Bloomberg.
