Lookout Report: S&P VRS Research Team Currently Sees Close Ties Between Investor Sentiment and Recent Sharp Declines in the ISM PMI

NEW YORK, Aug. 26, 2011 /PRNewswire/ -- S&P Valuation and Risk Strategies today announced the release of its Lookout Report for the next two weeks of 2011, featuring market insights on Q2/Q3 corporate earnings seasons, leveraged loan trends and more. The report, which is a biweekly research note that draws upon S&P’s unique analytical assets – Capital IQ, S&P Indices, S&P Leveraged Commentary and Data, S&P Equity Research and S&P Valuation and Risk Strategies Research – is available here.

Recent dramatic swings in investor sentiment and large increases in market volatility have, in the opinion of S&P VRS analysts, primarily been driven by sharp declines in the Institute for Supply Management’s Purchasing Managers Index. While these monthly releases are two of the most closely watched market-moving economic indicators, VRS Research believes that, under current circumstances, investors might want to digest these reports within the context of observations that additional data provide and not alone.

Following are some of the highlights in the August 26, 2011 edition of the Lookout Report:

• S&P Indices Equity Commentary: Have Earnings Peaked?
  • Analysts have had great expectations for the third quarter for well over a year, but estimates have been questioned over the past month after disappointing economic data, announced layoff notices, major European and U.S. debt issues, and spiking market volatility. Although third-quarter earnings estimates are now declining, they are doing so remarkably slowly relative to the negative economic and market factors.

• Leveraged Commentary And Data: The Yield Gap Between Leveraged Loans And High-Yield Bonds Is At A 42-Month Low
  • The loan market, rather than the high-yield market, bore the brunt of the recent market sell-off, which is understandable, in light of the Federal Reserve’s plan to keep interest rates low through at least 2013. Following the Fed's indication that they'd maintain low rates, the relative fortunes of fixed-rate bonds have improved at the expense of floating-rate loans.

• R2P Corporate Bond Monitor
  • Traditionally defensive industry classification sectors continue to offer the most attractive risk-adjusted yields, according to our analysis of global average R2P score percentile rankings, similar to conditions observed at the start of the second quarter on July 1.

• Market Derived Signal Commentary: The CDS Market Sees A Haven In Credit Suisse
  • VRS Research thinks that Credit Suisse's CDS will continue to be subject to concerns affecting the broader diversified financials group. However, the fact that the spread has traded consistently tight of the highest investment-grade benchmark, as well as the company's strong and stable credit rating, gives us confidence in the CDS as an ongoing low-risk play.

• Capital Market Commentary: IPOs Struggle Through The Late Summer Slump
  • Despite the recent slide in equity markets, companies still appear eager to tap the public market for capital; more than 26 companies have filed plans for an IPO, including seven technology firms and six in the energy sector.

• S&P Indices Commodity Commentary: Are Commodities Showing Signs Of Recession?
  • Commodity prices have fallen sharply in August on the back of steep declines in equity prices. Economically sensitive commodities like industrial metals and energy led declines, while precious metals rallied as investors sought solid stores of value assets amid increasing global financial asset volatility. Adverse weather has boosted the prices of the less economically sensitive agriculture sector. We expect the increasing desire for store of value assets, increasing demand in developing countries, and sustained low interest rates in developed countries to continue to support commodities.

The Lookout Report provides cross-market and cross-asset class views of current data and forward-looking insights from leading S&P market specialists. Key areas of focus include aggregated corporate earnings, market and credit risk evaluation, capital markets activity, index investing and proprietary data and analytics. The report previews the issues most likely to drive market expectations or cause a market disturbance in the weeks ahead. It can be accessed on S&P.com, the S&P Global Credit Portal and Capital IQ.

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