DATA-Smoking ‘hopium’: the Wall Street glossary to explain the rise in the markets


FILE PHOTO: A person wearing a mask walks in front of Wall Street after new cases were confirmed in New York City, March 6, 2020. REUTERS / Andrew Kelly

By April Joyner and Kate Duguid

NEW YORK, Jun 23 (Reuters) – Risk assets such as high-yield corporate stocks and bonds have risen in the past two and a half months, despite dire global economic prospects in the wake of the new coronavirus pandemic . The rebound has made some market watchers wonder why, but it has also given rise to a lot of jargon – some old and some new – trying to explain recent trends.

Here’s a guide to what’s driving financial markets in Wall Street’s own words.

DO NOT FIGHT AGAINST THE FED

A key factor in Wall Street’s rise, strategists say, is the Federal Reserve’s unprecedented monetary support, including the purchase of corporate bonds and exchange-traded funds.

The Federal Reserve’s balance sheet has expanded by about $ 3 trillion since March. Those measures have rekindled the slogan “don’t fight the Federal Reserve,” as the liquidity supplied by the United States central bank has fueled an upward trend.

“Every time the stock market starts to cave in, the Federal Reserve responds with some expansionary policy,” said Mike O’Rourke, head of market strategy at JonesTrading.

FOMO

As markets continue to rise, more people are being encouraged to enter. Retail investors unexpectedly increased their exposure to stocks during the downturn and recovery, and some institutional investors are following suit, Deutsche Bank strategists wrote earlier this month. Some market watchers attribute it to “fear of missing out” (FOMO), or “fear of staying out,” as concern about the coronavirus pandemic begins to subside.

“We have good news now, so investors are trying to get shares again,” said Andre Bakhos, CEO of New Vines Capital. FOMU

After hitting a four-year low in March, the prices of America’s riskiest corporate bonds have risen along with those of stocks by the FOMU, or for fear of a lack of performance (fear of massive underperformance), said William Zox, portfolio manager at Diamond Hill Capital Management.

As the rebound in risky assets took off, investors in conservative positions may have found themselves lagging behind. FOMU pushed them to increase their exposure to risk, driving the rally even further, Zox added.

TUB

The rebound in the market, despite lower corporate earnings forecasts, has caused stock valuations to soar. The future price / earnings ratio of the MSCI World index is at its highest level since June 2002, according to Barclays. But investors have not been discouraged by the notion of overvalued stocks. According to a popular line of thought, that’s because “there is no alternative” or TINA. Bond yields have declined because central banks around the world have reduced interest rates.

HOPIUM

Optimism that the US economy will recover quickly after the forced closure of companies has also boosted stocks. Several confidence indicators, including the Conference Board consumer survey, reflect an increasingly optimistic view. That has led to what Liz Ann Sonders, chief investment strategist at Charles Schwab, calls “hopium,” a mixture of opium and hope. “I think there is a lot of hope and the assumption, to some extent, that the recovery will be quite strong,” he said.

FOGO

The actions of various companies serving consumers at home have been resilient this year. Stocks for video conferencing company Zoom Communications Inc. rose in March even as markets plummeted, while those of home fitness company Peloton Interactive Inc. lost less than 1% that month. According to Brian Belski, head of investment strategy at BMO Capital Markets, stocks in household goods categories such as internet retail and grocery delivery will likely continue to outperform given the broad ” fear of leaving “Americans or FOGO (Fear of going out).

BEACH

Travel, leisure and energy companies, whose incomes have been decimated by the shutdown of the economy and travel restrictions, have experienced some of the most abrupt recoveries in their stock and bond prices in recent months. Shares of cruise ship operator Carnival Corp, for example, are up 136% from their lowest point in April, after the company secured $ 6.25 billion of bailout financing in the market.

Nick Maroutsos, director of global bonds at Janus Henderson, used the acronym BEACH, for travel agencies, energy, airlines and automobiles, cruises and hotels (Booking, energy, airlines, autos, cruise lines, hospitality), although it is not being joining the shopping frenzy of the market.

RORO

The foreign exchange market has followed the ups and downs of US stocks in the form of risk-taking and risk-taking or RORO (Risk-on Risk-off), as indicated in the manuals, according to analysts at HSBC. Before the Federal Reserve’s unprecedented intervention in financial markets in March, risky currencies, such as the Australian and New Zealand dollars, depreciated significantly against the US currency. The Australian fell 21.6% from the start of the year to its lowest point on March 19.

But as the stock market has rebounded, shelters like the Japanese yen and the Swiss franc have weakened significantly more against the dollar than risky currencies.

(Report by April Joyner and Kate Duguid; additional report by Sujata Rao in London and Devik Jain in Bengaluru; Edited in Spanish by Javier López de Lérida)