The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Back from the dead.
At 4 AM, S&P futures were trading down 55 points. They stayed down significantly as we approached the open. After Friday’s selling, things were looking ugly, with a chance of becoming scary. The news was uninteresting again and there was no material data that broke. The index opened down about 50 points and traded around there for the first 15 minutes. The market clawed its way upward and would fall back numerous times over the morning. Once Europe closed, US dip-buyers controlled the tape and started repairing the morning’s damage. The index managed to print some positive levels in the final 90 minutes of the day and it quietly finished up small. Treasury yields climbed yet again and flow was basically normal (101%).
The equity market is very nervous lately but the dip-buyers are steadfast supporters of price. The market appears to be bifurcated, with one group of very bearish investors strongly active during European trading and one group of very bullish investors dominant from lunch to close.
Is the situation as simple as one group being wrong? Which one?
Valuations are a perpetual concern but the valuation story is gaining traction as the market fails to make new highs. News hasn’t been terribly significant lately so we can’t say that we’ve entered a new chapter of geopolitical risk nor of economic transition. Everything, as far as US capital markets are concerned, has been stable and healthy. There’s no likely risk right around the corner that could derail the economy.
This results in a weird environment for stocks. We’re not worried about a recession and we’re not excited about a growth ramp. We’re status quo, and given how much we’ve climbed in the last two years, that doesn’t inspire new highs.
We’ve discussed this situation since December and maybe earnings season will make or break the bull. We get some of the big banks reports on the 15th… so let’s see if that kicks the bulls into motion again.
I haven’t heard any earnings season scuttlebutt but that doesn’t mean much. For the longs, that’s actually probably a good thing. So Wednesday morning will give us something to talk about. Until then.
See you tomorrow.
-Mike
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