• Companies in emerging markets are raising a record amount of debt this year as they try to both cushion their balance sheets as many of their economies struggle with covid and take advantage of the historically low interest rates. $249 billion has been raised through bonds so far this year. Despite this increase in debt, however, the net leverage of high yield issuers in emerging markets is roughly 3x compared to 5x for their US counterparts. Their default rate is also only 3.5% (around half the rate in the US).
• The stock market has now gone 292 days without a correction of 5% or more, 3x longer than the average since WWII. This may be why many investors, while staying in equities, are starting to reallocate towards more defensive sectors. So far the utilities sector, which offers a yield of around 3%, is the best performing this quarter with a gain of 10.2%.
• The stock market seems to be ignoring the increased likelihood that corporate taxes will rise from 21% to 25%. According to Wolfe Research the most-tax sensitive stocks have risen around 25% while the least tax sensitive are only up 22%. Not surprising though - in 2017, when President Trump cut the corporate tax rate, the market did not start to price in the effect until around six weeks prior to it being signed into law.
• Despite Hurricane Ida’s damage, the stocks of insurance companies within the S&P500 are up 3.7% in the past month. This is because 1) Ida is expected to have created $20 billion in property and casualty losses, which significantly less than Hurricane Katrina’s $86.6 billion and Sandy’s $33.9 billion 2) most of the damage in the northeast will be covered by the federal governments FEMA flood insurance program and 3) insurance companies have already increased their premiums due to inflation, rising cybercrime, and an already expensive catastrophe season.