“In times of rapid change, experience could be your worst enemy.” (Jean Paul Getty - 1892-1976)
Sudden Reminder
The sudden Nasdaq sell-off on Friday afternoon triggered a reminder of the smooth-sailing multi-year bullish run, which has continued so far. The mostly stumped and defeated long-time money managers have for so long waited for a grand sell-off in Nasdaq stocks, particularly of what’s been known as the FANG's (Facebook, Apple, Netflix and Google). Now the anticipation of spiking volatility for correction from "overvalued" levels to market place is causing observers to realize the weakness of the real economy, which should all should playout sooner rather than later. No investment guru was needed to highlight that tech giants were reaching a crowded point with lots of momentum chasing. When the bulls keep getting rewarded, the natural inclination to follow the herd is inevitable, especially professional money managers who must stay invested. The mind-numbing trend of higher stocks, (and other asset prices such as real estate, junk bonds, etc.), lower yields and muted volatility have been reigning as the grand themes for financial services. To the delight of Central Banks, major shocks have been averted and bearish investors have been mocked ad nauseam, leaving a crowd of investors overwhelmed in momentum driven stocks, primarily in Tech driven areas.
The Skeptic Revival
The ongoing disconnect between a sluggish economy and financial markets mixed with a dissatisfied voting class and unease of key global relationships can add to a growing list of investor worries. For too long this has been making headlines or outlined by seasoned professionals. The silent skeptics are now ready to reiterate the undeniable unsuitability of the bullish run that has inflated asset classes, while creating a rift and anger in the political circles due to bleeding real economy and neglect by the establishment to revive policy-driven growth. If the Trump victory and Brexit results were not a loud enough of a statement, the failure of asset prices to hold at elevated levels can serve as an even bigger "reality check" for financial markets. There is no shortage of negative catalysts, from the China downgrade to the Saudi vs. Qatar rift to less than impressive growth numbers. Somehow, a market that's been flooded with logical cases for a downside move found a summer Friday afternoon, after hitting record highs, to reawaken the living bears. At some point, momentum fades, but timing the glorious top is a dangerous and near impossible task.
Dullness Noted
The last three months witnessed decline in Crude prices, a weakening in the Dollar, and lower yields. There’s a lot to digest from here, from a potential oversupply of Crude to fading Trump optimism to not impressive real economy to ongoing low rate central polices. Regardless of the reason why these trends have materialized in recent months, it’s important to note that Crude, the Dollar and interest rate themes have traded in tandem recently. The vibrancy of the real economy is being questioned despite near-record highs in US broad stock indexes. There’s a question that looms: if the high-octane Technology stocks are out of favor, then where’s the favorable areas to rotate to? Is it Energy or Emerging Markets? Is there a panic that’s waiting? The lesson in the marketplace is quite clear, timing the market is a difficult task for anyone, even for professionals who’ve noticed trends for multi-decades. At the same time, timing the length of a correction is quite difficult, too.
Frankly, there’s no shortage of excuses to drive the market into a chaotic mode. The convergence of the real economy’s trend with stock prices would suggest that stocks need a reality check. Equally, when an investment is too saturated and assumed to be the best, then vulnerability awaits. With that said, the stage is setting up for anxiousness that’s been brewing slowly, but not represented in headlines via a mega splash.
Key Levels: (Prices as of Close: June 9, 2017)
S&P 500 Index [2,431.77] – The intra-day high on June 9, 2017 of 2446.20 either marks the penultimate top or marks the next benchmark for record highs. Interestingly, a break below 2,400 can awaken further sellers and increase a loss of momentum.
Crude (Spot) [$45.83] – Since the break below $52 in March this year, Crude prices have struggled to recover. Perhaps, this is another signal of expanding supply, including in US output. There is a fading upside momentum so far, despite the rising tension in the Middle East.
Gold [$1,266.55] – Steadily rising since January 27 lows of $1,184.85. In the near-term, investors will see if $1,280 is a peak of sorts.
DXY – US Dollar Index [97.27] – Since the March 2, 2017 peak of 102.26, the Dollar Index has been in a downward trend. For over three months the Dollar strength theme has faltered.
US 10 Year Treasury Yields [2.20%] – Closer to 3-month lows, as low yields remain in a constant downtrend. The majority continue to realize that surpassing 3% is a lot to ask, at least rapidly.
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The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
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