Weekly Market Pulse: Have We Reached Peak Speculation?

One last thing to consider is that there is nothing in the economic data or markets that points to a recession right now. Not the yield curve, not credit spreads, not the CFNAI or any of the other broad economic indicators. Bear markets are generally associated with recessions but that isn’t always the case. There have been plenty of corrections that approach 20% but never quite break the barrier to full blown bear market. But down 19% hurts every bit as much as down 20% no matter what you call it. And with markets as overbought as they are now, what might have been a routine correction in the past may well get classified as a bear market today. Just as an example, if the S&P 500 were to drop to the 50 month moving average, a level it has visited 4 times since 2012, the total loss would be over 30%. And you could still look at that chart and call it a long term uptrend. It’s a long way down to the long term trend.

 

The economic reports last week were generally good but that was largely expected and the market reaction was muted. GDP was up 6.4% and is now less than 1% from the peak in Q4 2019. Personal income and spending surged on stimulus payments but a big chunk of the windfall was saved as the savings rate surged to over 27%. Home prices continue to ramp higher, up 12% year over year but pending sales also picked up after last month’s downdraft. One disappointment was jobless claims which fell but are still in the 500s, which might explain that savings rate. Note: Ignore the Durable Goods data below. For some reason our data feed did not update this report. New orders for durable goods were up 0.5% in March, 1.6% ex-transportation. Core capital goods orders were up 0.9%. None of those are great although the capital goods orders were an all time high.

 

The environment is still rising growth and neutral/stable dollar. The dollar had a good day Friday and was up 0.5% on the week. It was down over 2% for the month but it continues to frustrate bull and bear alike. One thing to consider if you are long EM stocks:  Absent a new downtrend in the dollar, EM is unlikely to outperform. We still have a position that we are monitoring closely.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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William K. 1 month ago Member's comment

Housing sales have been booming because of the low interest rates on those huge mortgages, and how long will that last? Only until it ends. And then??? And many CEOs are very good motivational speakers, which helps keep investors happy no matter what. So just like that old song, "That's the Way it goes, Where it ends Nobody Knows, (but if it does), That's the way it goes." (A very old song, from the early 1960's.)

So there could be a "correction", because nobody will call it a recession or a crash. Oh Well.