Saturday, April 28, 2018

Weekly Market Summary

Summary:  US equities have been in a consolidation phase for most of 2018.  In the past, these consolidation periods have lasted a half year or longer - so this might continue into summer - although some measures of sentiment are already near a washout.  New highs are very likely to still lie ahead in 2018.

US corporates continue to do well. In 1Q18, they are likely to post sales growth of 9% and a new high in margins. Those profits are being reinvested for future growth.

Investors are worried about rising interest rates. They shouldn't be. Especially from current (low) levels, rising rates have coincided with rising equity prices. That has been the case as far back as the 1940s. The FOMC is very likely to raise rates again in June; since 1980, equities have peaked after the final rate hike.

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After rising two weeks in a row, US equities fell gain this week. April ends on Monday and barring a massive drop, the month will close higher for the first time since January (from Enlarge any chart by clicking on it.

Sunday, April 8, 2018

Weekly Market Summary

Summary:  Trade war rhetoric is driving US equities. This week, for the third time in the past month, the start of a sustained rally was clobbered by administration threats. Conversely, every interim recovery has come on the heels of conciliatory language. Long story short, what happens next in the equity market is very much a function of which trade posture the administration adopts next. Longer term, it's unlikely much of the current rhetoric will make into actual policy as it suits no one's economic interests.

Volatility has shot up in the past two months. Remarkably, investors now view volatility as the "new safe haven" and a "dependable bet." To that end, speculators are now positioned net long Vix futures to a near record extent; in the past decade, that has reliably coincided with at least a near term top in volatility.

This past week, SPX closed below it's 200-dma for the first time in over 400 days. The end of prior long streaks have not coincided with the start of bear market since 1962. Returns after the end of these long streaks have been exceptionally strong.

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US equities gained three days in a row last week for the first time in a month but a massive gap down on Friday and further follow through selling turned the markets negative for the week and (mostly) for the year (from Alphatrends). Enlarge any chart by clicking on it.

Friday, April 6, 2018

April Macro Update: Markets Might Be Wobbly But The Economy Is Fine

SummaryThe macro data from the past month continues to mostly point to positive growth. On balance, the evidence suggests the imminent onset of a recession is unlikely.

The bond market agrees with the macro data. The yield curve has 'inverted' (10 year yields less than 2-year yields) ahead of every recession in the past 40 years (arrows). The lag between inversion and the start of the next recession has been long: at least a year and in several instances as long as 2-3 years. On this basis, the current expansion will likely last through 2018 at a minimum. Enlarge any image by clicking on it.