According to Germany’s Zentrum für Europäische Wirtschaftsforschung, or ZEW, the slump in the country’s economy has now reached its fourteenth month. The institute’s sentiment index has improved in the last two, but only slightly. As of the latest calculation released today, it stands at -3.6.
That’s up from -24.7 back in October, though sentiment had likewise improved at one point last year, too. In July, the number was also -24.7 rebounding to -10.6 in September before the real stuff began.
One of my favorite analytical techniques for generating insights on global markets is studying market breadth, and those who know me know I like to take a bit of an alternative angle, and today’s chart is no exception.
What makes today’s chart so interesting is that (in contrast to most of the stuff out there right now) it presents a bullish take on global equities. With investor sentiment still mostly on the bearish side, particularly on the fundamentals outlook, anything with a bullish slant should be greeted with particular interest.
The chart shows the count of 52-week new highs for the main equity benchmark across the 70 countries we monitor. If you look closely you can see a slight tick up.
My goal is to make you mad. Not at me (though I expect to ruffle a few feathers with this one). At the evil being wrought in the name of fighting inflation and maximizing employment. And at the aggressive indifference to this evil, exhibited by the capitalists, the gold bugs, and the otherwise-free-marketers.
So, today I am going to do something I have never done. I am going to rant! I am even going to use vulgar language (which is totally justified).
In researching several recent articles, I re-read old passages from Keynes. Consider these snippets:
St. Patrick’s Day was [on Sunday]. Traditionally known as the biggest drinking holiday, I wondered whether the stock market often suffered a hangover the next day. The study below looks at performance for SPX on the day after St. Patrick’s Day from 1978 – 2018.
The numbers appear impressively bullish. Below is a look at the profit curve.
The sentiment snapshot series is back! For context, in the sentiment snapshot series I look at some of the charts from the weekly survey on Twitter, which asks respondents to indicate whether they are bullish or bearish for primarily technical or fundamental rationale. I also add a few other charts from time to time when it helps explore a certain theme.
The key takeaways from the weekly sentiment snapshot are:
-Investors appear ‘reluctant bulls’; bullish on technicals, yet bearish on fundamentals
-Bond investors are in agreement on the softening fundamentals, and remain very bullish overall
-A big breakout in bonds could be on the cards in the near term if recent history repeats
1. Fundamentals vs Technicals: The latest results showed “fundamentals” net-bulls at the second-equal lowest reading since the survey began, and yet “technicals” net-bulls at the strongest level since May last year. It’s quite easy to reconcile these two seemingly disparate views… on the one hand investors remain concerned about the fundamentals (softer domestic and global data, weaker earnings pulse, political risks etc), yet on the other hand the price action looks good – as I noted in the Weekly S&P500 ChartStorm, the S&P500 rejected the downside break of the 200-day moving average and closed above the key 2800 mark last week. So people become reluctant bulls.
A Twitter follower ( @SonnyRico ) asked me about weeks following Quad-witching, which occurs in March, June, September, and December. As I have shown in the past, the 2nd half of December has shown bullish tendencies historically (ignore 2018), but those other 3 have NOT been good weeks for the market. In fact, back in September I discussed the “Weakest Week”, which is the week after September opex. In the Quantifiable Edges subscriber letter that same week (free trial here) I showed a table with the best and worst weeks of the year since 1988. Below is an updated version of that table, showing just the bottom 8 weeks. (Note I did not include weeks after the 5th Friday of the month, since instances for those were greatly reduced.)
Most of the behavior of market sentiment indicators is driven by what prices do. This week’s chart is a case in point, showing the spread between the bullish and bearish percentages as reported by Investors Intelligence. The attribute of these data that I want to call attention to is how closely this bull-bear spread resembles the price action of the SP500.
OK, this is just getting silly. As of this writing, this is the FIFTH time the /ES has approached 2825 and been repelled (I emphasis “as of this writing”, because I realize it could blow right past it at any moment…….but still!)
With Adequate Capital To Avoid Another 2008 Debacle
The Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie were placed into conservatorship with their regulator back in 2008 after housing prices declined and mortgage defaults spiked.
But since the catastrophic year of 2008, Fannie Mae (as an example) generated substantial net revenue after 2008. [This brings into question the wisdom of placing Fannie and Freddie into conservatorship.]
Quantitative tightening has been running at full speed for almost 5 months now (and for a total period of 17 months since commencing in October 2017), and with QT finally coming front of mind for investors I thought it would be a good idea to update some of the charts from my previous “8 Charts on Quantitative Tightening” article (as well as a couple of new charts and indicators).
It’s also very timely to revisit this topic as the Fed has begun to get distinctly cold feet on rate hikes and QT (quantitative tightening, aka “balance sheet normalization” or “balance sheet runoff”), and speculation is growing that QT1 may get put on ice as the Fed approaches its apparent deemed ‘neutral balance sheet level’ (my term – borrowing from the neutral Fed funds interest rate level concept), or as Fed Chair Powell mentioned, the “normal balance sheet“.