Charts that Scare Wall Street

A recent article in Bloomberg offers a compilation of what it calls “Wall Street’s chilling charts” that highlight ongoing concerns about high levels of corporate debt, volatile markets and the “ills in industrial sectors of the economy.” The charts are captioned by comments from industry professionals.

Here is a sampling of the data and comments featured in the article:

Quality: Jill Carey Hall of Bank of America Merrill Lynch says that quality has grown scarce among small caps, adding that the proportion of non-earners within the Russell 2000 has climbed to nearly 30%, a level normally seen during recessions:

Confidence: According to BMO Capital Markets vice president of U.S. rates strategy Jon Hill, CEO confidence hasn’t been this low without the U.S. about to enter or already in a recession: “If corporate leadership pulls back on investment and/or hiring, that alone could be enough to trip us into contraction.”

Greenhouse gas emissions: Kathryn Koch, co-head of Goldman Sachs Asset Management’s fundamental equity business cites data from Climate Action Tracker showing that current government commitments and projections for carbon reduction are falling short of targets. “In order to potentially reach these targets,” she says, “we believe the corporate sector will need to provide innovative solutions to the challenges the planet faces today.”

Volatility: IPS Strategic Capital head trader Patrick Hennessy notes the increasingly volatile behavior of the S&P 500 in recent years. “Historically,” he says, “it’s more likely to see this dynamic near market tops than bottoms.”

Market depth: Credit Suisse equity trading strategist Victor Lin points out that market depth remains “extremely shallow” adding that it is significantly lower than in previous years and reflects an increased sensitivity to risk. He says, “This usually makes it more difficult to trade in size and also potentially leaves the market more susceptible to extreme moves.”

Deterioration of credit quality: PIMCO portfolio manager Erin Browne argues that the weakening of corporate credit quality on a year-to-date basis “highlights a vulnerability in markets and is a reason why PIMCO remains defensive on broader corporate credit.”