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The inflation metric I refer to in today's commentary is CPI... This morning's PCE (core) came in a bit softer than consensus, which inspired a pre-open pop in equities -- consistent with our expectations.
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Again, I'm feeling uninspired to attempt to dazzle (or, perhaps, frazzle) you with yet another stab at articulating why we remain relatively cautious right here, and/or, why risk-concerned investors should resist the allure of bull narratives that utterly lack the robustness that present circumstances demand. I’m therefore offering up yet another popular -- and I think timeless -- post from the past.
Here's your weekly, sector, regional, and asset class results update:
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Like I said last week, the current equity market setup, in many respects, is as toppy as it's been since the top hit January of last year... Here, from BofA, is yet another example (concentration amid a handful of stocks):
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Sticking with the sentiment theme, here's from Monday's morning note:
"As we've been flagging lately, our sentiment indicator is beginning to notice a crowd forming over on the bull side of the proverbial boat (investors sneaking over from the bear side)."
I went on to feature 2 (AAII sentiment and the equity put/call ratio) of the 8 inputs to our own "Fear/Greed Index" -- which presently scores firmly in net greed territory, at -37.5 (oscillates between +100 [max fear] to -100 [max greed]) -- which is now piercing levels that too-often coincide with market tops (be they short or long-term).
Well, we just received Investor Intelligence's weekly read on advisor sentiment, and it has worked its way right to the edge of the danger zone as well... Here's from the report:
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Thinking through this morning's inflation print I'm thinking "meh" pretty much captures it.
Headline coming in at 0.1% month-on-month, vs 0.2% consensus expectations, 4.0% year-on-year, vs 4.1% expected... Ex-out food and energy (core inflation) and it's bang-on expectations, which were 0.4% m/m and 5.3% y/y.
Certainly nothing to upset equity markets, as, for certain, the Fed's doing nothing tomorrow... They'll pause, they'll warn that it may very well be "a skip," and that there's not-small potential for rate-hike resumption later in the year.
The following chart, however, says odds favor that the Fed's all done with rate hikes -- for this cycle -- for good... In fact, it says that the next rate move from the Fed will actually be a cut.
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Here's an 8-year monthly Bollinger Band chart for SP500... Note price (white bar) moving above the grey line (20-month moving average, April saw price close above)... That nearly always signals the official end of a bear market, or correction:
Before we jump to this week's results update, let's take a look at this morning's release of the May ISM Services Survey.
In Friday's economic update I mentioned that I expected it to come in at a still-expansionary score (above 50)... Well, it did, but just by a hair (yellow line [white is manufacturing]):
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"...it looks very much like we’re in the midst of an echo bubble, with the Nasdaq 100 shares up over 30% this year.
And it’s just an “echo” because as recently as the beginning of last year, Nasdaq 100 stocks were more than 10% higher than today.
I think when one looks at the grand sweep of things, it’s going to be difficult to sustain this rally — not because the economy will fade. It will be because the interest rate environment won’t allow it."
Hence the "catch 22" we keep stressing... If, as remains (for now) our base case, the economy does fade, that risks an earnings hit that is not nearly priced into today's leaders' share prices...
