Curve steepening is helping cyclical and ‘value’ sectors outperform for a third straight session. Rally attempts based on cyclical sector leadership are considered more sustainable that those based on defensive sector leadership.
The S&P 500 low on 3/23 was preceded by a record high in the CBOE equity put/call ratio on 3/12. The CBOE equity put/call ratio is a daily number that reflects sentiment in a highly emotional investor class and used as a contrarian indicator.
The WSJ’s Greg Ip noted some high frequency data that points to early signs of a US recovery: 1) map requests on Apple have been on a steady climb since the week ending April 9; 2) retail visits have improved from -50% year-over-year in mid-April
Equity prices definitely adjust based on real-time developments. And equities do become overvalued, disconnected from reality and vulnerable to significant corrections. But that happens when sentiment is at bullish extremes, when equity positioning is stretched and when financial conditions are tightening.
The most important considerations for equities are always interest rates and bond yields. Both are extremely bullish for equities at the moment. Money supply is a massive input for the economy 6-9 months forward (very strong correlation between M1 to PMI data two months forward)
The drivers behind yesterday afternoon’s fade include: 1) Los Angeles lock-down extension news; 2) California State University System announcing plans to hold all fall classes online; 3) concerns around increased US-China tensions after a group of senators introduced sanctions legislation and…
There are more than two sides to every story, but we’d stay focused on liquidity dynamics. Again, the current recession is the result of a completely exogenous shock with no bad actors to blame and therefore, no moral hazard in the policy response that has
The S&P 500’s ~30% recovery from the 3/23 trough comes as a surprise to many investors who remain cautious and frustrated by the rally. They remain bearish because equity prices have disconnected from economic fundamentals. Of course, equities are always disconnected from present economic fundamentals
Fed funds futures are beginning to point in the direction of negative interest rates in 2021. The ECB currently has negative interest rates, which penalizes money kept on deposit.
Bearish equity sentiment as measured by the American Association of Individual Investors (AAII) weekly sentiment poll reached an all-time record of 52.07 on March 26, 2020. The S&P made a cycle low two days earlier on March 23, 2020. It’s a weekly survey so it
