The CBOE Equity put/call ratio is a reliable measure of investor sentiment. And like all sentiment indicators, it’s meant to be contrarian with high numbers reflecting increased bearishness from a highly emotional and levered investor class.
The S&P 500 has slipped into our 3150-3210 range of strong technical support (December breakout range). Closing levels much below ~3150 would challenge the bullish short-term technical picture and could push out expectations for new record highs in the second half of 2020.
The coronavirus narrative over the past four weeks had assumed the economic fallout from coronavirus would be severe, but still largely confined to Q1 and China. Weekend news of rising infection rates outside of China challenge that assumption with Italy’s regional travel restrictions acting as
Our note from January 17 and January 23 discussed the increased probability for a 2-4% pullback in the SPX based on decelerating price trend momentum and elevated bullish sentiment. A six-session long, ~3.2% pullback ended on January 31, but the ensuing ~5% rally in the
In the long-run, currency exchange rates are mostly influenced by an economy’s current account balance. The ‘current account’ is simply the trade balance plus net income and direct payments. The currencies of countries with a current account surplus are supposed to trade at a premium
Last week, we explained the importance of cyclical sector leadership for the health of any bull market. We noted that gains last week came on defensive sector leadership, which casts doubt on the sustainability of new highs. We wouldn’t add broad equity exposure until cyclical
We think cyclical sector outperformance is still required for the S&P 500 to sustain current levels. Defensive sectors lead today, but we see enough encouragement in other markets to stay constructive in the near-term.
The S&P 500 continues to trade near record highs on defensive sector leadership. Record highs in the broad market are probably unsustainable if they’re not confirmed by record highs in cyclical indices. The recovery from the 1/31 coronavirus-linked low has included several days of cyclical
Markets are not dismissing the economic fallout from the outbreak, but they are ‘looking through’ it. Consensus expectations for China Q1 GDP are for ~4% growth (down from ~6%), which probably needs to go lower…maybe much lower. Earlier this week, we estimated Q1 growth would
The bullish narrative includes a number of strong tailwinds including: 1) reduced trade tensions; 2) ample monetary accommodation with major central banks sounding committed to low rates; 3) potential US earnings inflection based on Q4 results and; 4) signs of stabilizing global growth.
