Market Briefing For Tuesday, August 2

Anxiety returns to the forefront a bit; as Goldman Sachs, already concerned (as have we been for that matter) about returns ahead, ramped up its warnings earlier on Monday. Typically such expressions actually trigger a bit of selling and shorting, and the market subsequently recovers. One should beware this pattern.

Why? Because it has technically been (and remains) a very unadjusted overbought market, which when combined with entirely unjustified fundamental valuations; just looks like an accident (or at least erosion) waiting to happen. Because it's evident, not just to us but a number of others now, you have the inability to get a significant decline underway. However the false comfort that provides, assisted by TINA (the 'there is no alternative' argument), it is fairly hollow and can be shaken to the core.

While it's easy to look back and recognize that in hindsight the market worked well higher than might be justified, part of it occurred ironically because of 'flight-safety' buying in the wake of Brexit, as well as concerns from other parts of the world that their currencies might be debased further (China comes to mind as remains risky). Concurrently we expected some sort of July stabilization; though it stubbornly has persisted, in part for reasons we've outlined.

Not only that but NASDAQ has been 'relatively' stronger than the NYSE, because a tendency to shift away from multinational stocks with export exposure triggered the post-Brexit move. The irony there is that the Dollar is softening since (as assessed) Brexit was not a large problem at all; with panic fears overblown by Soros or others both ahead and after the vote. (I'm pleased that we rightly leaned toward 'Leave' as the victor, as well as the pre-vote run-up being sold into; and then the rebound that carried to new highs especially for the FTSI London Index.)

The lack of problems, at least for now, contributed to the stronger than softer Dollar performance. That is a plus for US exports (slightly relative to a month ago) and might even result in a bit of a shift back to multinationals among 'musical chairs' managers, should it persist.