Latest news with #Colas
Business Insider
4 hours ago
- Business
- Business Insider
Stocks and bonds are behaving like the US economy is recession-proof
"Recession-proof." Professional economists might balk at the phrase, but it's how the stock and bond markets see the economy in the second half of 2025. DataTrek Research wrote on Tuesday that markets are flashing signs of extreme confidence in the trajectory of the US economy. Nicholas Colas, cofounder of the firm, pointed to two signals being sent in the stock and bond markets in particular: In the stock market, valuations look similar to levels seen during the internet boom in the 1990s, Colas said, with the S&P 500 achieving a series of record highs in recent weeks. The benchmark index now looks like it's 8% more expensive than it was during the dot-com bubble, based on the forward price-to-earnings multiple among S&P 500 companies, DataTrek said. Given earnings estimates for 2026, the index looks on track to be 23% more expensive than it was during the dot-com bubble next year. There's no way to explain those valuations without using a price-to-earnings ratio that implies "Peak confidence" or "Super Peak" confidence among investors, Colas said. "Whether one likes or not, US large cap valuations imply at least a 'highly recession resistant US economy,' if not a 'recession-proof' one," he said. In the bond market, a similar story is unfolding in the 10-year US Treasury yield. When recession odds decrease, investors tend to expect two things, Colas said: They don't expect a decrease in inflation. Recessions are inherently disinflationary, and tend to reduce the overall inflation rate by an average of 4.4 percentage points, Colas said. They expect long-term interest rates to rise. That's because investors don't expect the Fed to lower interest rates to boost growth, leading to a higher 10-year yield. The 10-year US Treasury yield hovered around 4.4% on Tuesday, higher than levels seen 10 years ago. Meanwhile, the 10-year breakeven inflation rate hovered around 2.44% on Tuesday. That's also higher than the average through 2010-2019, when inflation expectations hovered around 2%. "The idea that markets are cutting future recession odds does a good job of explaining why nominal yields may remain high," Colas said. "It is optimism about the US economy's recession resistance, not pessimism regarding the Fed's inflation fighting credentials, driving this phenomenon." The research firm said it was first introduced to the idea of a "recession-proof" US economy from a previous conversation with a financial journalist. The thesis is based on five things that show increased resilience in the US economy, Colas said: The US economy avoided a recession during the 2010s. It was the first-ever decade in modern history where the economy didn't have a downturn. The economy avoided a recession that decade despite a handful of catalysts, like the Greek Debt Crisis and when the Fed raised interest rates in 2018. Since 2018, there have been more job openings than unemployed workers. The labor shortage could buffer the job market during shocks that, in the past, would have caused a recession. After the Great Financial Crisis, the US erected guardrails to keep the banking and financial sectors stable. Since the late 2010s, stock valuations have climbed higher, a possible sign equity investors"were beginning to catch on" to the idea that the economy is more resistant to downturns that in past eras. The US slipped into a recession at the start of the COVID-19 pandemic, and later entered a brief technical recession in 2022, when GDP contracted for two quarters in a row. But an official recession, which is declared by the National Bureau of Economic Research, hasn't arrived since the Fed began raising interest rates. Most forecasters on Wall Street expect the economy to cool off, but steer clear of an official downturn this year. According to a Bank of America survey conducted in July, 65% of global fund managers said they believed the most likely outcome for the world economy was a soft landing, while 21% said they believed the most likely outcome was a " no-landing," a situation where inflation comes down and the economy continues to expand.
CNBC
17-06-2025
- Business
- CNBC
Fed chairs are tough on policy in their final year, and Powell is no different, DataTrek's Colas says
Federal Reserve Chair Jerome Powell seems unlikely to announce a rate cut plan on Wednesday following the central bank's policy meeting. That puts him on a similar path as his predecessors, according to Nicholas Colas, co-founder of DataTrek Research. Powell's term as the Fed's leader is set to expire in May, leaving him with just eight more Federal Open Market Committee meetings in the top position, including this week's. Previous Fed chairs tended to be more conservative with regard to rate cuts in their final year, Colas said in a note to clients. "The last 3 Fed Chairs" — Alan Greenspan, Ben Bernanke and Janet Yellen — "all ended their terms on a hawkish note," Colas wrote. "Powell is continuing that trend, focused on exiting the job with his inflation-fighting credibility and political independence intact." This history could be one reason that markets seem to anticipate the Fed will be slow to cut this year, even with recent data pointing to inflation and economic growth cooling and with political pressure from the Trump administration. As of Tuesday afternoon, traders expected two quarter-point rate cuts by the end of 2025, according to pricing in the fed funds futures market as measured by CME FedWatch tool . The market odds for just one cut this year have increased over the past month, as well. The uncertainty around President Donald Trump's tariff policies is likely another factor that could keep Powell and the Fed from cutting rates, even if recent data points in that direction. The good news is that a more hawkish Fed is not necessarily a bad thing for the stock market. Colas said the S & P 500 has rallied by an average of 16% in the final 12 months of the previous three Fed chairs' terms. "Investors understand that Fed Chairs are thinking about their inflation-fighting legacies in their last months in office," Colas said. "On top of that, Powell may also be considering how history will judge his role in maintaining the Fed's political independence. We should consider whatever he says – or doesn't say – on Wednesday through that lens."
Yahoo
16-06-2025
- Business
- Yahoo
Why US stocks aren't bracing for 'significant escalation' in Israel-Iran conflict yet
US stocks have remained resilient despite escalating tensions between Israel and Iran. Since Israel first launched missiles on Iran before the market open on Friday, the S&P 500 (^GSPC) is essentially flat. "So far, we think the US equity market hasn't baked in a significant escalation or broadening [of the conflict]," RBC Capital Markets head of US equity strategy research Lori Calvasina wrote in a note to clients on Sunday. Calvasina said the key risk to markets from the conflict would be an escalation of the attacks that leads to a jump in oil prices. Oil prices initially surged on Friday, with West Texas Intermediate futures (CL=F) hitting a high of $77 before paring back gains. By Monday morning, WTI futures had fallen to about $70 per barrel, reflecting just a 3% increase since the start of the conflict. Strategists have argued that a closure of the Strait of Hormuz — a waterway between the Persian Gulf and the Gulf of Oman that accounts for about 20% of global oil flows — would be the likely catalyst to keep sending oil prices higher. But that is looking increasingly unlikely. On Monday, the Wall Street Journal reported Iran is seeking to deescalate the conflict, citing insight from "Middle Eastern and European" officials. Stocks moved higher on the report, while oil futures quickly hit their lows of the session. For investors, the prevailing market fear of the conflict is that a large increase in oil prices could disrupt an already murky inflation picture, with investors waiting for increased tariffs to eventually lead to price increases later this year. This could keep the Federal Reserve from cutting interest rates and potentially weigh on the health of the US consumer. But as DataTrek Research co-founder Nick Colas pointed out in a note on Monday morning, that would typically require a large spike in oil prices. Colas analyzed the time period from 1987 through 2019 and found that WTI crude prices typically double compared to the previous year prior to recessions. Colas argued this puts the key level to watch for WTI crude at $120 a barrel, a far cry from the roughly $70 it sat at on Monday morning. This large of a jump in oil would require a "protracted bout of military action," per Colas. "While we assume Mideast tensions will soon subside, as they have repeatedly done over the last few years, oil prices can eventually impact the US economy and investors are best served by maintaining exposure to the Energy (XLE) sector," Colas wrote. Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
11-06-2025
- Business
- Yahoo
‘Big Money' turns bullish on stocks. Will that lead the S&P 500 to a ‘melt up'?
Large, sophisticated investors now appear to be embracing the rally in U.S. stocks, as the S&P 500 attempts to remain above 6,000 in a rise toward its record high notched in February. 'Institutional investors are, believe it or not, quite bullish right now,' DataTrek Research co-founder Nicholas Colas said in a note emailed Monday. 'State Street's Institutional Investor Risk Appetite index shows that the 'Big Money' is only now embracing the recent rally, which suggests a further 'melt up' move higher into quarter end.' 'It might be another Apple or Microsoft': My wife invested $100K in one stock and it exploded 1,500%. Do we sell? 'The situation is extreme': I'm 65 and leaving my estate to only one grandchild. Can the others contest my will? 'I prepaid our mom's rent for a year': My sister is a millionaire and never helps our mother. How do I cut her out of her will? A local restaurant has a 5% container charge and 3% kitchen-service fee. Is this as nuts as it sounds? Why Goldman Sachs says high-flying tech stocks may be headed for a tough stretch 'Institutional investors were reducing risk from March through mid-May 2025, their longest bout of de-risking since September–December 2023,' Colas said. 'Risk appetites are verging on levels consistent with a near term top,' he said. 'This could certainly come later in June.' The S&P 500 index SPX ended Friday at 6,000.36, the highest level since February and just 2.3% below its record closing high, which was reached Feb. 19, according to Dow Jones Market Data. A melt up risks happening when investors sharply accelerate the market's climb in what appears to be an unsustainable way. This may happen after a wave of investors buys stocks on fear they have missed out on the rally, with the potential for a market letdown afterward. 'The S&P 500 is back to 6,000, which means it trades for 22.7x consensus 2025 earnings estimates ($264/share),' wrote Colas. 'To own U.S. large caps here, one must believe multiples will increase further.' The S&P 500 index edged 0.1% higher Monday, after back-to-back weekly gains. Consensus earnings estimates for the S&P 500 typically 'almost always decline through a year unless the U.S. economy is coming out of a recession,' according to DataTrek. 'That's not the case now, so the S&P will only get more 'expensive' as the year goes on, even if it goes nowhere for the next few months.' The S&P 500 saw a strong rebound in May after being rocked by tariff worries. The U.S. stock-market index is now back in positive territory for 2025, even as trade-policy uncertainty persists, with a year-to-date gain of around 2% based on Monday afternoon trading levels. Read: No shortage of disputes to discuss during U.S.-China trade talks in London 'Institutional investors have been risk-wary until very recently, even with a global equity rally that is now fully two months old, and they clearly ended May in catch-up mode to correct for that unnecessary caution,' said Colas. With peaks in State Street's risk-appetite index tending to coincide with 'near-term tops' for the S&P 500, he looked for evidence of such cases in the current rally, which began in the fourth quarter of 2022. 'Such was the case in July 2023, July 2024, and January–February 2025,' Colas found. 'The only exception was in the run up to the 2024 U.S. general election (in October of that year).' The U.S. stock market traded mostly higher Monday, with the S&P 500 up 0.1%, the technology-heavy Nasdaq Composite COMP gaining 0.3% and the Dow Jones Industrial Average DJIA about flat, according to FactSet data. I bought my mother-in-law a condo — and she took out a $30,000 car loan. Now she refuses to get a roommate. 20 stocks bucking bad trends on Wall Street — what might be next for them? 'He failed in his fiduciary duty': My brother liquidated our mother's 401(k) for her nursing home. He claimed the rest. We have 2 children — one has legal knowledge and lives far away, the other lacks financial savvy but lives nearby. Who should we appoint as executor? How do I make sure my son-in-law doesn't get his hands on my daughter's inheritance? Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
CNBC
28-05-2025
- Business
- CNBC
The rest of the world is trouncing the U.S. stock market. Why that could continue
It's been a banner year for international stocks compared to the U.S. The iShares MSCI All Country World Index ex U.S. ETF (ACWX) has rallied more than 14% in 2025, while the S & P 500 is marginally higher year to date. ACWX also hit a closing record high on Tuesday, while the U.S. large-cap benchmark is still 3.8% below its all-time high set in February. This outperformance by the rest of the world is uncommon to say the least. DataTrek Research co-founder Nicholas Colas noted that international stocks are outpacing the S & P 500 by more than three deviations over the past 100 days. That's only the third time that's happened since 2010, he said. These periods have historically been followed by a swift comeback in the S & P 500 relative to the All Country World Index. But Colas thinks this time could be different. ACWX .SPX YTD mountain ACWX vs SPX year to date "We must consider the possibility that there is a regime shift underway in currency and/or equity markets," Colas wrote. "Perhaps capital will keep flowing out of the dollar and U.S. stocks for both diversification and fundamental reasons." The dollar index, which measures the greenback's performance against six leading currencies, has tumbled 8% in 2025. That loss is driven in part by concerns around evolving U.S. trade policies. President Donald Trump in April unveiled a raft of steep tariffs on imported goods. Since then, many of those levies have been temporarily paused or reduced. A lower dollar tends to benefit international markets outside the U.S., making it cheaper for consumers and companies in overseas markets to buy dollar-denominated goods and assets, be they energy or gold or anything else. Stronger oveseas currencies also translate into more dollars when non-U.S. returns are measured here. That tailwind has powered 2025 thus far: iShares MSCI Emerging Markets ETF (EEM): up 10% year to date iShares MSCI Japan ETF (EWJ): up 11.7% in 2025 iShares MSCI China ETF (MCHI): up 15.3% this year "The safest path is to continue to index weight rest of world stocks (roughly a 36% allocation)," Colas added. "While we are still long-term bullish on U.S. equities, investors who benchmark against global equities or those worried about missing out on non-U.S. gains might be well served by owning rest of world stocks for the next few months." Bank of America also pointed out that the technical backdrop for international looks promising. Strategist Paul Ciana noted that ACWX's 50-day moving average is rising and that its 14-week RSI is above 65. "For those reasons, this is a technically constructive picture. Fibonacci measures suggest the breakout can trend higher," he said.
