This is an interesting, if obscure, indicator (at least not many people talk about it)… particularly so with the latest results. The indicator provides a view on institutional investor confidence based on actual buying and selling by State Street’s multi-trillion dollar global custodian business. If fund managers and asset owners are raising allocations to risky assets like equities then this indicator goes up (and vis versa). So when you see the global investor confidence index at the lowest point since early 2013 it’s something to pay attention to for global equities.
What kind of bear is best? The kind that doesn’t happen!
But alas, the Goldman Sach Bull/Bear index is signalling a possible bear market.
“Low unemployment … and strong growth momentum at such an advanced stage in the economic cycle would normally already be associated with higher wages and, consequently, higher inflation and tighter monetary policy,” Goldman Sachs strategists said.
But “it is because of the lack of inflation that some of these variables can appear stretched without ringing alarm bells for equity investors. Put another way, it is very unlikely that without core inflation rising much, policy rates will rise sufficiently in the US or elsewhere to invert yield curves and/or force a recession in the near future,” the strategists said.
It doesn’t mean the bull market will end soon. But after a 9 1/2-year rally where the S&P 500 rose 19 percent annually, investors should be prepared for lower returns in coming years.
August 02, 2018
We saw a really high degree of bullishness back in January 2018, when the U.S. stock market was making a big blowoff top. Since then, the major averages have struggled to move higher, and so has bullish sentiment. But in July 2018, we saw the Investors Intelligence Bull-Bear Spread move up again above its upper 50-1 Bollinger Band (BBand).
That is a clue that sentiment is getting too far extended, but it is not enough by itself to say that the market is all done going up. What is needed is a crossing back below the upper 50-1 BBand to say that a top is at hand. And while this is a useful indication, it is far from being a perfect one.
No frogs were harmed in the making of this video! At the time of a boil it’s a rubber stunt frog, which gave me a sense of relief as I watched.
As part of the S&P 500 top-test scenario we have favored since February a key component to a failed test would be that the frightened Bullfrogs that jumped out of the pot in February and March would return, settle in and get nice and comfy. Maybe not with the bounce in their hop that they had in January but well, comfy.
The VIX is on a little pop today as Friday’s twitch of anxiety extends. But the move is far from conclusive. VIX has been a good sign that relative complacency and comfort have been restored here in the dead of summer.
This week it’s a rather unusual indicator, one of my own inventions, the Reflation Trade Positioning Indicator. For those not familiar, the “reflation trade” refers to a lift in risk appetite driven by a resurgence in growth and inflation… basically an excuse to buy stocks and growth assets.
The chart comes from a report which outlined the risks and opportunities in commodities as an asset class (in the aggregate view).
The chart tracks futures positioning across the major reflation trade assets, and the key point is that it’s rolling over from previous extreme readings. This lines up with some of the other trends and indicators we’ve been watching and adds to the tactically cautious outlook for growth assets.
Agree 100%, Charlie.
Now, I am not of that ilk personally. My closely held biases are that a) the market’s cycles can be interpreted and managed (although my bias also has led me astray at times, in my execution) and b) that the economy, and by extension the markets, are not normal; not your grandpa’s economy and markets because they are ginned and steroidally goosed by off-the-charts (i.e. experimental) central bank meddling. That’s my bias in line with my entire history of public writing since 2004.
So I am not a stock market apologist, bull wise guy or ‘buy ‘n hold stocks for the long’ run tout. But I am the guy who is frequently nonplussed about the mainstream media fanning the flames of investor/trader sentiment during inflammatory news cycles. As Charlie says “it is their job to entertain” and “your job to ignore”.
But this applies not only in the major media. It applies to the minor media as well. Led by Zero Hedge, a whole raft of blogs and other entities are going to fan your flames with all sorts of opinionated, agenda driven or just plain biased information. And what Charlie has right is that it is absolutely imperative to tune it the hell out. That is because the bias never changes because it is promoting emotional viewpoints, promoting sides, teams. In the market the only side is the right side, whether your little heart of hearts agrees with it or not.
Looking at the charts this week investors remain bullish, and judging by the margin debt and leverage charts – investors are clearly voting with their feet! This article reviews the latest results of the weekly survey I run on Twitter. The survey asks investors whether they are bullish or bearish for fundamental vs technical rationale and for both equities and bonds. This week we actually saw a record broken, with the highest reading on “Bullish (Fundamentals)” for equities since the survey began. As the sum of the charts below show, investors look to be very confident on the outlook for stocks.
The key takeaways from the weekly sentiment snapshot are:
-Equity investors are very bullish on the “fundamentals” outlook.
-Bond investors on the other hand remain bearish on the fundamentals.
-Equity investors are backing this confidence with substantial bets in leveraged ETFs.
-For that matter, stock market leverage overall remains around record highs in absolute terms and as a percentage of market cap.
1. Fundamentals vs Technicals Sentiment: Starting as usual with a look at fundamentals vs technicals sentiment for equities, the results were really interesting this week. The general uptrend in the fundamentals bull/bear spread culminated in an all time high (now to be fair, the survey only commenced in July 2016, so take the words “all time high” with a grain of salt). But the bottom line is that investors still seem very optimistic on the fundamentals… although as I mentioned in the latest Weekly S&P500 ChartStorm, there remains a degree of mixed signals and clear indecision in the market.
The latest results from the weekly surveys on Twitter showed some very interesting trends in investor sentiment towards both the bond market and the stock market. Below we look at some key charts from the survey as well as some data on fund flows and futures positioning and we discuss the possibility of another stock + bond selloff. If we get a repeat of the stock + bond selloff that we saw in Jan/Feb, it could well take investors by surprise, and our data show that it’s equity traders who stand to bear the most pain if this happens.
The key takeaways from the stock + bond sentiment snapshot are:
-Equity investors remain bullish on the fundamentals, yet remain cautious on the technicals.
-While equity investors seem at odds with bond investors on the fundamentals outlook, it appears bond investors overall are more bearish on the outlook for bonds.
-With fund flows rolling over for both bonds and stocks it highlights the possibility of a stock + bond selloff.
-Speculative futures positioning shows bond traders are set to profit from higher bond yields, and equity traders are anticipating higher stock prices.
1. Fundamental vs Technical Sentiment: The latest results showed an interesting rebound in “fundamentals” net-bullish sentiment, while technicals sentiment dropped off. If I had to guess the technicals sentiment may well be driven by the fact that the week’s trading finished with what looked like a third successive lower high (see the latest Weekly S&P500 #ChartStorm where I discussed this). As for fundamentals, it’s hard to pin it on any one thing, but I would note on my metrics the overall pulse of the economic and earnings data remain sound.
So far, the recovery from the February correction is proving *not* to be a “v-shaped recovery”, and rather seems to be in a process of undertaking a classic “double-dip recovery”. Headline risk has certainly been a driver, and at this point noise, sentiment, and signals are more intertwined than ever. So it’s timely to take a snapshot of where sentiment is sitting across a number of key indicators including the weekly survey on Twitter.
The high level message from the equity and bond outlook and positioning surveys on Twitter is that of a gradual and material shift in sentiment from the extremes around the turn of the year. Sentiment is immensely susceptible to being swayed simply by price, yet it can reflect a change in mood, and the perceptions around fundamentals can yield important insights.
In this respect, at once the charts show both a market that has undertaken a typical reaction to a correction in prices, while also showing scope for a further shakeout in sentiment and positioning. This is set against a backdrop of a steady shift in the perception of fundamentals. So it’s fair to say the risks are *not* one-sided at this point.
The bullet point conclusions and observations on sentiment and positioning are: