The current environment includes two out of three preconditions to broadly re-entering risk markets: 1) markets are now priced for recession and; 2) equity positioning is extremely underweight. What’s missing is a decelerating US infection rate, which could be ~3-4 weeks away. But as noted
SPX: Two preconditions for a rally exist in that markets have now fully priced a US recession and investors are extremely underweight equities. But broadly reentering risk assets probably requires a decelerating infection rate in the US. Until that happens any rally should be considered
The impact of the outbreak will leave a massive pothole in the US economy and S&P 500 earnings. A steep uncertainty discount has been applied…it’s a moving target of a moving target around infection rates and the negative economic impact of containment efforts. But there’s
The ECB’s vastly expanded QE plan (additional €750B on top of €250B) has successfully addressed the credit issues that followed Lagarde’s comment that narrowing credit spreads weren’t part of the central bank’s function. Her comment was a 180 degree reversal of Draghi’s consistent message on
Markets hate uncertainty and there’s no lack of it at the moment, especially around US infection rates as testing begins to increase. The worst-case scenarios being discussed on social media and televised broadcasts of 5-50 million expected US hospitalizations and 2 million deaths far surpass
Making a decision to re-enter risk markets based on sentiment indicators alone requires a leap of faith. Technical reversals also require a leap of faith and generally require two sessions to confirm…we’re not there yet but today’s close could be a set-up. And the S&P
The Fed has moved to the ‘zero bound’ again (last in 2008) and bond yields will likely stay tied to Fed policy given low inflation expectations. The current Saudi/Russia oil price war is obviously disinflationary and recessions (technical or fundamental) are not the time to
Equities are extremely oversold with sentiment also at bearish extremes, but reversals are usually two-session events at least. The ‘ideal’ technical setup today would be a close near the open, followed by significant gains on Monday. We’re completely open minded about the potential for lower
Today’s release of the weekly AAII US Investor survey resulted in bearish sentiment reaching 51.31, which exceeds the extreme levels of 50.4 from 12/27/18. Recall on Monday, the CBOE Equity Put/Call ratio reached 1.12, just 2bps from its all-time record high of 1.14 from 12/21/18.
Yesterday, equity sentiment as measured by the CBOE equity put/call ratio reached bearish extremes. Other sentiment indicators have flashed similar contrarian buy signals, while we wait on tomorrow’s weekly AAII survey data for confirmation.
