Equity Positioning At Record Levels

In this week’s Dirty Dozen [CHART PACK] we look at earnings season data, high valuations, bullish expectations, and record levels in sentiment and positioning… we then talk about what this means going forward, look at some inflation drivers, and reiterate our bull case for precious metals, plus more….

Let’s dive in.

***click charts to enlarge***

  1. Earnings season is upon us… Bloomberg notes the high bar that’s been set, writing “Based on existing analyst forecasts for earnings in all of 2021, the S&P 500 trades at almost 24 times estimates, among its highest valuations ever. To bring the multiple down to its long-term average of 16 times annual profits, companies in the gauge will have to make about 15% more than the equity researchers currently expect them to earn — in 2023.”

  1. Here are the most anticipated releases this week from Earnings Whispers.

  1. Ned Davis Research lays out the downside of when too much upside is priced in (h/t @modestproposal1 for the chart).

  1. Financials and tech have been two of the strongest sectors year-to-date, following energy which takes first spot. While energy names have benefited from a rerating of extremely bearish expectations to just mildly so, the other two sectors have been boosted by that Buyback Tailwind

  1. More evidence supporting growth and momentum’s relative leadership in this Buy Climax.

  1. China's PPI is accelerating which tends to lead to positive inflationary surprises globally.

  1. Speaking of inflation, the Economic Policy Institute published a report last week exploring the relationship between Labor bargaining power and sticky inflation. The EPI writes:

“…the only factor more responsible for weak wage growth for the typical worker is the excessive unemployment perpetrated by central bank policymakers’ high interest rate policies and fiscal austerity. The share of workers covered by a collective bargaining agreement fell from 27.0% in 1979 to just 11.6% in 2019.This impact of eroded collective bargaining lowered the median hourly wage by $1.56 over the 1979–2017 period. Put another way, the median hourly wage was $19.70 in 2017 but would have been $21.27 had collective bargaining not declined (all in 2020 dollars).”

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Disclaimer: All statements are solely opinions and are for educational purposes only.

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