Chief Investments Officer of Deltec Bank and Trust, Hugo Rogers, makes a feature in Bloomberg’s latest opinion piece this month.
The widely read article entitled, The Stocks Rotation Ride is Real, and Violent written by John Authers, covers the latest shift in the Stock Market leadership this year. Authers outlines how the stock market has in fact broaden throughout recent months, and he points out that the shift is a result of the critical role played by the bond market.
However, to add greater context to his point, Authers invites Rogers to the conversation. Rogers explains that when yields are at very low levels, bond volatility becomes significantly more consequential as both a market indicator and as a component of financial conditions. In fact, he notes that controlling bond market volatility is an adjunct goal of the extraordinary stimulus measure launched by Central Banks.
“In a way it is the certainty of ‘low forever’ rates and the unlimited buying potential that is most stimulative. This is reflected in [suppressed] bond volatility. But now that the post COVID recovery has begun, now inflation expectations are justifiably rising, and with fears of another high-teens budget deficit, so is bond market volatility,” Rogers says.
He continued, “This is a foundation of markets, a key component of financial conditions. As long rates rise, as bond market volatility increases, funding tightens.”
“We have explained some of the link to other markets, but the market beyond bonds themselves that is most effected are equities priced using zero cost of capital (unicorns). It is no surprise to see companies making no cash flow, priced off blue sky thinking, falling fastest in this market. We expect this to continue.”
Rogers predicts that if bond yields continue to rise in the way he expects, increasing discount rates will mean that stocks with the most value ascribed to the promise of cash flow sometime in the future will fall the most.
Hugo Rogers directs the macroeconomic research, and market, industry and stock analysis guiding Deltec Bank investment team, which currently oversees $10 billion in assets under management. He has responsibility for Deltec-managed portfolios and funds, Deltec’s strategic and tactical asset allocation, geographic and sectoral weightings, and FX and interest rate positioning. He also leads the investment team on product development and investment process innovation.
Bloomberg (New York based) is a privately held financial software, data and media company founded by Michael Bloomberg in 1981.
To read more from Bloombergs article click this link, The Stocks Rotation Ride Is Real, and Violent – Bloomberg
