Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
Singapore Sales Trader
Are we finally seeing equity markets take a breather? US equities rebounded sharply towards the end of October. The S&P 500 corrected almost 12% from its high in early October to a whisker above 2,600 before finding some support at the significant level. President Trump, in what may well be a ploy to save himself from midterm election woes, is now striking the right notes (at least from the market’s perspective) and has been more conciliatory in his approach to China this week as he expressed his willingness to strike a deal with President Xi in the G20 meeting in Argentina later this month.
The move higher was also helped by a slew of positive earnings: Facebook in the tech industry lifted sentiment while Ford/General Motors boosted the industrial sector massively last Wednesday. At the time of writing, Apple was down 6.5% post-market, but sentiment remains strong with the S&P 500 still grinding its way 0.6% higher. The bigger picture, however, still remains the trade spat.
The slide in the VIX volatility index towards the low 20s level could also indicate that the equity market is beginning to show lesser signs of fear. If VIX>18 is a gauge of fear in the market, then the first half of 2018 saw two brief “fear momenta” with VIX trading above 18; each of them lasted around just under 20 trading days. We are currently at day 17 of the count since the VIX climbed substantially in early October and both the VIX and the broader fear in the equity market might have seen a temporary top, in my opinion.