After a brutal first half of the year, small cap stocks began their recovery in mid-June and this continued in July and August. Not coincidentally, the credit market also showed substantial improvement.
As the economy slowly begins to emerge from the pandemic, investors may naturally have concerns regarding the long term economic impact.
After a share price surge, Hertz Corporation petitioned for and initially received bankruptcy court approval to raise money via a common stock offering. This was a surprising turn of events for a company that recently filed for Chapter 11 protection.
Small value equities are valued -38% below their 10-year average, while growth, defensive, low volatility, and ESG factors exceed the bubble threshold of +30%. This dispersion has reached a 20-year high, in line with the dot-com bubble.
Equity has a credit blind spot. 95% of Russell 3000 companies issue debt, 75% of which is sub-investment grade. Equity investors study stock price movements but often ignore credit market signals.
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