Eq: Total Market
If you have doubts about where the market is heading and no fundamental view about direction, one place to search for one is in historical parallels. Sometimes looking at history prompts bullishness, but in this case, looking for past market parallels is terrifying. At the moment, the chart making the rounds is one comparing the current S&P 500 to 1937. Doing so makes it look as though the market is going to revert back into a bearish grip at any moment. But guess what, the same chart floated around in 2010, 2013, and 2015, and the big fall never happened.
FINSUM: This bull run has defied gravity many times, and it is hard to see why his time would be different. That said, all good things must come to an end at some point.
Big bank Credit Suisse thinks the stock market rally will keep going. They say the big gains this year are mostly because of improved investor sentiment on the back of a more dovish Fed, weaker inflation, and the better prospects for a US-China deal. Further, the bank’s chief US equity strategist says “Our work indicates that investors have not fully re-risked portfolios following 4Q’s turbulence—despite a sharp decline in volatility and spreads—and that valuations will drift higher as they do so”.
FINSUM: We have to tentatively agree with this view. Sentiment is up, and combined with lower valuations and the fact that investors have not fully re-entered the market, there does seem to be a good runway higher.
Well, it has finally happened, but not as anyone expected. The whole industry has been watching for the first zero fee ETF, which just happened with SoFi, but now they are getting the first negative fee ETF. While zero fee index mutual funds debuted last year, ETFs only just got there, until the debut of the SALT Financial Low TruBeta US Market ETF. For every $10,000 invested in the new fund, the issuer will pay you $5. However, as you may have expected, there is a catch. The catch is that once the fund gets over $100m in AUM, its regular fee of 0.29% kicks in.
FINSUM: This is nothing more than a sales gimmick (and they haven’t even structured it well). However, it is indicative of the trend things are heading in.
In one of the most alarming bits of news we have seen about the economy is some time, new data out on the hiring market is showing a bleak trend. The US economy almost failed to produce any new jobs in February, with the total job creation figure at just 20,000. That is a major step down from the hundreds of thousands of new jobs investors had been used to seeing each month. The number is a meteoric fall from the 311,000 created in January, and way under the forecast of 180,000. Following the data, a senior member of the Fed reiterated that the central bank should take no actions on rates until at least the middle of the year.
FINSUM: This is very scary, but there is an important motto to remember here—one point does not a trend make.
There are a lot of worrying signs out there right now, but one thing that has bolstered optimism is the strength of the stock market in 2019. That said, there are signs appearing that underlying fundamentals are weakening. In particular, daily moves are shrinking, down from 0.9% in the 4 months leading to February, to just 0.4% in February. The slowdown in trading momentum is not only worrying in its own right, but also because the exact same trend appeared before the falls of February and December 2018.
FINSUM: Our counter argument is that average index moves were quite small through several solid years between 2014 and 2018, so it dos not necessarily indicate a problem.
Wall street bulls are becoming an endangered species, or so says the Financial Times. In a worrying sign for stocks, investors are increasing their cash balances, a move that supports the flood of bearish outlooks out there right now. Most analysts have a fairly pessimistic view of the market, with many calling for a recession and market downturn by the end of 2020. Precious few have bullish views, leaving Krishna Memani, CIO of OppenheimerFunds, in a unique spot in that he thinks we are in the middle of a 20-year bull market.
FINSUM: Most everyone has gotten very bearish in their medium term outlooks. Counter indicator?