Evening Note

The prospects for unrelenting stimulus, the willingness to “believe”, per the quote below, and no doubt some substantial short-covering, per my morning note, continue to keep the S&P 500 hovering at levels that many thoughtful/experienced analysts (yours truly included) see as dangerous, given real general conditions. As you'll see in the chart below, the results for the S&P 500 don’t necessarily tell the broader market story.

A snippet form our Question of the Day posted earlier:

“It's just what happens, people still believe, need to believe, have to believe, want to believe in the prior bubble that they owned."

On the data front, credit card defaults are reportedly spiraling out of control. The major card issuers are extending forgiveness, but, at the same time, they’re tightening standards on new originations. 

Companies, on the other hand, are having no trouble gaining new credit. Netflix offered up a billion dollars worth of junk bonds on Friday that were 10 times oversubscribed, for example.

Fascinating how investors remain sanguine enough to grab junk debt, amid reports on the financial health of consumers (the economy!) like the one referenced above. I suspect that the implicit Fed backstop has a little something to do with it. Hence, via Fed support since the last crisis, the credit bubble we find ourselves in!

As if we need more to report on in terms of messy equity market internals, Goldman Sachs points out that while the S&P 500 is trading 17% below its February high, the median stock in the index trades at 28% below that peak. Such polarization, per the chart below, hasn’t existed since the tech bubble, and has “often signaled large drawdowns”.

Stay tuned...