Stocks, bonds, currencies, crude oil and metals were all rocked this week as sentiment swung dramatically from “risk off” to “risk on.”
The S+P 500 index hit new ATHs again this week...closing higher 7 of the last 8 weeks...rising ~10% from the early October lows. YTD gains are ~25%. David Rosenberg reports that 95% of the total return YTD has come from P/E multiple expansion, with dividends accounting for 8% while actual earnings account for a negative 3%.
The major American stock indices hit new ATHs Tuesday but turned modestly lower as trade optimism faltered. Bullish momentum has been inspired by easy monetary policy, FOMO and TINA...with little regard for WHY monetary policy has been easy. Investors have been handsomely rewarded for buying dips.
The runaway bull market in major stock indices continued this week with lots of new ATHs (notably Ex China and EEM...and Trannies and Russell.) I’ve been writing here for the past month that “if” the major indices made new ATHs a lot of people would be amazed and some cautious money managers would be “forced” to buy or risk losing AUM.
My best performing trades YTD have come from recognizing that September 3, 2019 was a HUGELY important inflection point across a number of KEY markets. The reversal in the interest rate markets on September 3rd was the epicenter of the inflection point...but the range of markets that reversed on or around that day is truly impressive.
The Bank of Canada and the Federal Reserve both roiled markets Wednesday...even though their initial communications were exactly as expected.
The S+P 500 index hit a new ATH today...up ~ 6% from Oct 3 lows...up ~11% from mid-summer lows...up ~29% from last December lows. We’re in the heart of quarterly earnings season...companies that beat are aggressively bid...companies that miss are clobbered.
Currency market trends often go WAY further than you can imagine...they develop a self-reinforcing momentum (which we used to call “Leads and Lags”) and then they turn on a dime and go the other way.
This was a perfect week to be reminded that trading is not a game of perfect. I was long stocks and crude and short gold early in the week...got cold feet and bailed out with tiny losses just before those markets moved hard against me. I was happy to have played just-in-time defense.
The major US stock indices fell sharply (DJIA down 1,200) Tuesday through Thursday as weaker-than-expected PMIs provided more evidence that the economy is slowing and as political tempers flared in Washington.