Uncertainty On Wall Street - Most In At Least 20 Years

Meaning, the percentage of bears has been above 39% for 5 straight weeks which is the longest streak since late 2012. That’s the same situation the University of Michigan sentiment survey is in as it had the biggest drop since December 2012. That shows how in tune that index is with the stock market. On the other hand, investment advisers aren’t bearish. Obviously, they get paid to be bullish, but on an apples to apples basis, they are less bearish now than in late 2012. Back then, 28% were bearish and now 18% are bearish.

There is a wide array of forecasts for the S&P 500’s year-end performance. As you can see from the chart below, the standard deviation of year-end predictions for the S&P 500 is the highest in at least 20 years. Standard deviation was very high in 2001. I’m not sure when this calculation starts in each September. I’m guessing the 9-11 attacks on the twin towers caused the uncertainty in 2001. Current uncertainty in 2019 is caused by the trade war and economic slowdown. If the trade war gets worse, there can easily be a recession. And if there is a trade deal, 2020 can get off to a great start.

Big Selloff In Treasuries

Optimism on trade caused a big selloff in treasuries in a move that was overdue. As you can see in the chart below, the 10-year yield started the day at about 1.47%. It’s now at 1.58%. The two-year yield started the day at about 1.43% and it’s now trading at 1.54%. The curve is still normal, but very flat. We want it to stay flat to avoid a recession. A 2.4% selloff in the TLT was the largest 1 day decline since the 2016 presidential election. This is what happens when an overcrowded trade sees new flow go against it.

An 11% gain in the TLT in August was the largest one-month gain since September 2011. As you can see in the chart below, the TLT has had an amazing run. If the index sees a mean reversion, there will be 2 handle on the 10-year yield very shortly. Since the short end of the curve sold off, the odds of at least three more rate cuts this year fell from 46% to 31.4%. I see one cut in September; I have no forecast for October and December. That’s because a trade deal could take any more cuts off the table and I’m predicting a deal by December 15th.

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