Market Outlook: Is This A V-Shaped Recovery?

Anyways, here’s what happened next to the S&P when copper fell to a 2 year low. Forward returns over the next few weeks were poor.

Now onto the good news.

Labor market is still a positive factor 

The labor market is still a positive factor for macro. Initial Claims and Continued Claims are trending sideways. In the past, these 2 leading indicators trended higher before bear markets and recessions began.

Financial conditions

Financial conditions remain very loose. In the past, financial conditions tightened before recessions and bear markets began.

Here’s the Chicago Fed’s Financial Conditions Credit Subindex

Here’s banks’ lending standards. Whereas lending standards remain loose today, they tightened significantly before the previous 2 bear markets and recessions.

Delinquency Rates

Delinquency rates continue to trend downwards. In the past, this indicator trended upwards before recessions and bear markets began.

Heavy Truck Sales

Heavy Truck Sales is still trending upwards. In the past, Heavy Truck Sales trended downwards before recessions and bear markets began.

Retail Sales

Inflation-adjusted Retail Sales are still trending upwards. This is different from the previous 2 bear markets and recessions, which were preceded by flattening real Retail Sales.

We don’t use our discretionary outlook for trading. We use our quantitative trading models because they are end-to-end systems that tell you how to trade ALL THE TIME, even when our discretionary outlook is mixed. Members can see our model’s latest trades here updated in real-time.

Conclusion

Here is our discretionary market outlook:

  1. Long term: risk:reward is not bullish. In a most optimistic scenario, the bull market probably has 1 year left.
  2. Medium term (next 6-9 months): most market studies lean bullish.
  3. Short term (next 1-3 months) market studies are mixed.
  4. We focus on the medium-long term.

Goldman Sachs’ Bull/Bear Indicator demonstrates that risk:reward favors long term bears.

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Comments

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Moon Kil Woong 1 year ago Contributor's comment

There is a lot of negative news to digest and the market is taking it pretty well. That said, there is only so much the market can bear with unpredictability reigning supreme thanks to political factors that seem to be sliding out of control with no firm strategy. It is fortunate the Republicans and Democrats got a stimulus budget in before the recent set of issues.

Bill Johnson 1 year ago Member's comment

Very true.