The short-term bearish narrative includes two main risks including escalating US/China tensions and the possible reimposition of coronavirus lockdowns. A third risk around US protests is sometimes cited, but we think it’s far smaller and probably inversely correlated to the other two. We expected US/China
US high frequency data (traffic, employee time management and weekly claims for example) continues to suggest a steady rebound in overall US activity, but there’s clearly a lot of variance between states. A Reuters article this morning citing Homebase data noted employment is back to
The sell-off in US equities mostly attributed to bearish FOMC/Powell takeaways on the economy, rising Covid numbers and concerns of speculative excess from specific investor groups. Rising coronavirus hospitalizations in some US states suddenly in focus after US case counts reaches 2 million. While this
Recent strength in cyclical/value sectors is unwinding for a second consecutive session. It’s too early to make a call and we suspect today’s Fed meeting will have some influence in near-term sector dispersion. Also note some non-confirmation in cross-market indicators like the Gold/Copper ratio that
The S&P 500 is up +44% since the March 23 low with the z-scores on some momentum indicators nearing 1.5σ. The SPX is ‘taking a break’ today ahead of tomorrow’s FOMC meeting. Concerns about messaging risk focused on a taper-tantrum-like bond yield spike seem misplaced.
Cyclical sector leadership is important for the sustainability of broad market gains. The early outperformance of cyclical sectors in late March gave us extra confidence in the sustainability of the rally off the 3/23 low. It also kept our minds open to the possibility the
‘Skepticism’ is based on an apparent disconnect between presently weak economic conditions and the recent performance in equity markets. These two things are always disconnected as present market conditions reflect market expectations ~6-9 months forward.
Recessions take some time to run their course due to a negative feedback loop that runs from weak labor markets to weak consumer growth to weak corporate profits to weak labor markets. The labor market is most important and the reason economists focus on weekly
Elevated bearish investor sentiment and still cautious positioning continue to keep the pain trade aimed higher. Recent outperformance from cyclical sectors also giving broad market strength credibility amid widespread press skepticism. Other cross-market indicators like US Dollar Index weakness and the performance of Copper relative
The recent relative outperformance of cyclical/value sectors (Consumer Discretionary, Industrials Financials, Materials and Energy) is sending a positive signal for the US economy and equities broadly. Defensive sectors (Consumer Staples, Utilities, REITs, Health Care and Communication Services) led new record highs in the SPX last
