November 20, 2020
The S&P 500 (SPX) has spent this week consolidating post-election and vaccine-related gains from the prior two weeks. Investors were holding record cash balances coming out of spring lockdowns and into the election. The decision to hold excess cash was driven by emotion and the removal of the election overhang has led to a record $71.4B of global equity inflows over the past two weeks (ending Wednesday 11/18). Record sidelined cash, extreme bearish equity sentiment and light equity positioning through the spring and summer were key supports for our bullish outlook. We all know that emotional decisions tend to be bad decisions, but investors held record cash despite zero interest rates, sub-1% bond yields and 24%+ money supply growth. The SPX
gained 47.53% from the March 23 low through the end of August. Last week’s sentiment data resulted in the second highest bullish extreme on record, positioning is no longer light and sidelined cash has come off the bench. This doesn’t mean the SPX has to immediately correct, it just means there is no longer a safety net/cushion. We stay bullishly biased on the SPX above ~3400 and continue to look for any sign deteriorating market internals.