Whilst the market skulks about at giddy all-time highs there is stuff happening below the surface. Violent rotations: out of this, into that, recoiling from data that is starting to come off the boil. The 30-year bond yield just stooped below 2% for the first time since February, shepherding skittish investors back into the growth paddock. The inflation trade got hosed. One brokers ‘proxy’ basket had one of its worst days this year. It all speaks of some teeth chattering for H2. And, perhaps for good reason. Last week saw a package of data from household employment to vehicle sales that was a little off key, a reminder that forecasts don’t always get revised up. The Fed also reported another week of sharply negative loan growth. There may be some reasons for this – specifically related to the Paycheck Protection Program – but bank lending is a key metric of a boom-time economy, and worth watching. Soggy numbers will tell a story, and may well warn of an economy that lacks post pandemic oomph. Balancing the more moody news were upbeat reports on consumer confidence and unemployment claims. Child Tax Credit checks also start hitting bank accounts this month and so to hell with it, the speedos may soon be back on. What this sticky tape means for stocks fits the front-footed belief that there is a cohort, waiting stage left, for a re-rating off subdued valuations. These stocks have proven business models, proven management and an ability to serve up solid double-digit earnings growth into the rolling over of leading economic indicators. Pure compounders set up to deliver year in, year out. Companies such as Fiserv, Frontdoor, Electronic Arts and Anthem. If the data continues to fray into the autumn as the recovery matures, the patience of holding such names through the va-va-voom looks set to be well rewarded.
The securities mentioned in this blog may be held by funds managed by Majedie Asset Management Ltd.