Aurelia Butler

The S&P 500 is up 16% so far this year, but many investors are concerned the index has become too expensive, especially as Treasury yields have climbed.According to JPMorgan equity strategists, the current real rate implies a forward price-to-earnings (P/E) ratio of around 15 times to 16 times, based on data since 1982, versus its current ratio of about 20 times.”Equities are up 16% YTD mostly on multiple expansion while real rates and cost of capital are moving deeper into restrictive territory,” JPMorgan equity strategists said in a note. “History suggests this relationship is becoming increasingly unsustainable, posing risk to the equitymultiple.”JPMorgan looked at another metric, which compares P/E ratios to long-term expected earnings growth, and found equities are overvalued by 14%.The strategists said the “unsustainable” level of global debt combined with “a credible rise in inflation risk” had contributed to a sharp move higher in long-term rates.”This is another negative for an already stretched equity multiple, especially since a meaningful portion of the move may be associated with non-growth/supply forces,” the strategists said. More

(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever, financial markets columnist.Sagging stocks and new 2023 year highs for oil will put Asian markets on the defensive on Wednesday, as investors brace for U.S. inflation figures later in the day that will go a long way to determining the Fed’s rate decision next week.Asia’s economic calendar is marked by unemployment and import and export prices from South Korea, the latest tankan survey of manufacturing and service sector activity from Japan, as well as Japanese business sentiment and corporate goods prices.The real fireworks will come after Asian markets close, with the release of U.S. CPI for August. Annual core inflation is expected to ease to 4.3% from 4.7%, but headline inflation is predicted to rise to 3.6% from 3.2%.This is a tricky one for the Fed. And markets.With the U.S. labor market still tight by many measures and wage growth still sticky, some of the optimism that inflation was steadily falling toward a 2% handle may turn out to be a little premature.Concerns over price pressures are being stoked further by the latest spike in oil. Brent crude rose nearly 2% to fresh highs for the year above $92 a barrel on Tuesday, and is up almost 30% since the end of June.Year-on-year oil prices are now turning positive for the first time this year, something investors and policymakers could do without. Wall Street stocks closed in the red on Tuesday.Japan’s stocks and exchange rate unwound some of Monday’s knee-jerk moves triggered by surprisingly hawkish signals from Bank of Japan Governor Kazuo Ueda over the weekend. That saw the yen weaken back below 147.00 per dollar and the Nikkei 225 index jump nearly 1% on Tuesday.Perhaps more tellingly, however, the 10-year Japanese Government Bond yield didn’t retrace any of its move on Monday, and inched up to a new 10-year high of 0.72%. The cost of money in the world’s third largest economy is rising.In China, there was some good news for beleaguered property developer Country Garden, as the firm won approval from its creditors to extend repayments on six onshore bonds by three years. But the relief appears already to be fizzling out.Shares in the country’s largest developer jumped as much as 10% on the news, only to close the day up just 4%. The company’s market cap has been virtually wiped out over the last few years, and intraday swings like this are ultimately meaningless.China’s real estate sector is the most likely source of a global systemic credit event, according to Bank of America’s September fund manager survey, which also found investor sentiment on the global economy outside China was improving.According to a Reuters poll of economists, China’s economy will grow less than previously thought this year and next, with risks still skewed to the downside.Here are key developments that could provide more direction to markets on Wednesday:- South Korea unemployment (August)- Japan tankan survey (August)- Japan business sentiment index (Q3) (By Jamie McGeever; Editing by Josie Kao) More

NEW YORK (Reuters) -Goldman Sachs CEO David Solomon said the U.S. economy is likely to avoid a significant recession, but warned that inflation will likely be more persistent than market participants currently expect.”The chance of having a relatively soft landing and navigating through this has gone up very meaningfully over the last 12 months,” Solomon told Reuters in an interview on Tuesday. “The environment is definitely better.”The Federal Reserve has tamed inflation via interest rate increases, but it may need to take further action, he said.”I have a personal point of view that inflation is going to be a little bit more sticky than the more optimistic views,” Solomon said. “There’s still work to do.”The current trajectory of the U.S. Treasuries’ forward curve shows rates declining in the future, but Solomon cautioned that might not materialize.”You have to recognize it’s still very uncertain,” he said.Fed funds futures traders largely show the Fed will keep rates on hold until May or June next year, when traders expect the central bank will start cutting rates.Still, optimism that the U.S. economy will avoid a recession is leading to a reopening of capital markets, Solomon said. “You’re seeing now this month a bunch of significant IPOs in the market,” said Solomon, who noted that Goldman was involved in most of the initial public offerings. “They’re meaningful, they’re going well,” he said.Arm, the chip designer owned by SoftBank (TYO:9984) Group Corp, is close to raising about $5.4 billion in New York in what might be the biggest IPO of 2023. The IPO will price on Wednesday.Mergers and acquisitions likely will be slower to resume because uncertainty weighs on companies making strategic decisions. “People are starting to open up to a better environment and think a little bit more forward strategically, but there’s a lag time,” Solomon said.Solomon criticized U.S. proposals that would raise capital requirements for larger banks, echoing comments from his counterparts.Michael Barr, the Federal Reserve’s top regulatory official, told Congress in May that the central bank would unveil its plan to ratchet up capital rules for banks this summer and ensure supervisors more aggressively police lenders following regional bank failures earlier this year that required the government intervention.”I do think these capital rules will have an impact on economic growth and that will affect large businesses and small businesses and their access to capital,” Solomon said. “It’ll push some activity out of the banking system if they’re implemented.”JPMorgan Chase (NYSE:JPM) CEO Jamie Dimon blasted the proposed rules, telling investors on Monday that they could prompt lenders to pull back and stymie economic growth.If implemented, the regulations could increase Goldman’s capital requirements by slightly more than 25%, Solomon told an investor conference later Tuesday.The bank will take more writedowns on its commercial real estate portfolio in the third quarter, but amount will be lower than in the second quarter, when CRE weighed on its earnings.Solomon also spoke about departures of senior bankers, citing historic instances of turmoil when Goldman combined or reshuffled businesses. “Whenever you put businesses together, there’s going to be disruption and there’s going to be volatility,” he said.Goldman Sachs has seen several exits since it reorganized into three units last year and scaled back ambitions for its consumer business, which has lost $3 billion in the last three years. More

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