Q1 earnings preview: All calm, but what’s next?

Q1 earnings season is about to begin in earnest, with JPMorgan Chase scheduled to report on Wednesday and the rest of the big banks during this week.     Ahead of the reports, equity volumes have plunged even as the S&P 500 rose to all-time highs.     It’s quiet, maybe a little too quiet....

The sum of all fears: Inflation! Inflation!

The latest BoA Global Fund Manager Survey shows that respondents believe the biggest tail-risks to be inflation and its effects on the bond market.     Are these worries overblown? How will these concerns affect asset prices?     How transitory are inflation pressures? Recently, there has been a spate of reports about rising supply...

60/40 resilience in an inflation age

The fiscal and monetary authorities of the developed world are engaged in a great macroeconomic experiment. Governments are spending enormous sums to combat the recessionary effects of the pandemic and central banks are allowing monetary policy to stay loose in order to accommodate the fiscal stimulus. Eventually, inflation and inflation expectations are bound to rise....

Are you positioned for the post Great Rotation era?

Is the US stock market in a bubble? Yes and no, according to Ray Dalio of Bridgewater Associates. Using a proprietary technique to create a "bubble indicator", Dalio concluded that "the aggregate bubble gauge is around the 77th percentile today", compared to a 100th percentile reading in 1929 and 2000.     Dalio qualified his...

Will rising yields sideswipe equities?

Jerome Powell's Congressional testimony last week made the Fed's position clear. Monetary policy will remain easy for the foreseeable future. Inflation dynamics change, but not on a dime. While Fed policy will leave short-term interest rates anchored near zero, the market's inflation expectations have been rising. Last week, the 10-year Treasury yield briefly breached 1.6%...

No reasons to be bearish?

The nature of the market advance has been extraordinary and relentless. From a long-term perspective, the monthly MACD model flashed a buy signal last August for the broadly-based Wilshire 5000 and there are no signs of technical deterioration. This is a bull market, but sentiment has become sufficiently frothy that a reset is overdue.    ...

A good news-bad news earnings season

Q4 earnings season is in full swing, and results are strong. With 59% of the S&P 500 having reported, both the EPS and sales beat rates are well ahead of historical averages. Moreover, forward 12-month EPS estimates surged 3.5% in a single week.     As well, estimates are surging across all market cap bands....

Opportunities from shorts (GME is so last week)

Is this GameStop's "shoeshine boy" moment? Tracy Alloway pointed out that GME had made it to dog Instagram.      If dog Instagram wasn't enough of a shoeshine boy moment, how about this Michael Bathnick observation?     Regardless, there are a number of other opportunities in the short squeeze space to consider (other than...

What could go wrong?

Now that virtually everybody has bought into the reflation and global cyclical recovery trade, and Reddit flash mobs are ganging up on short sellers to drive the most short-sold stocks into the stratosphere, what could go wrong with this bull?     Notwithstanding the silliness of the WSB flash mobs, here are some key bearish...

Risk happens quickly

Mid-week market update: What are we make of this market? In the last four years, the weekly S&P 500 chart shows that we have seen six corrective episodes of differing magnitudes. Risk happens, and sometimes with little or no warning.     About half of those instances saw negative 5-week RSI divergences, which we are...

When new highs aren’t bullish

Preface: Explaining our market timing models We maintain several market timing models, each with differing time horizons. The "Ultimate Market Timing Model" is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.  ...

Tactically cautious, despite the data glitch

In yesterday's post, I pointed out that, according to FactSet, consensus S&P 500 EPS estimates had dropped about -0.50 across the board over the last three weeks (see 2020 is over, what's the next pain trade?).     The decline turned out to be a data anomaly. A closer examination of the evolution of consensus...

2020 is over, what’s the next pain trade?

Preface: Explaining our market timing models We maintain several market timing models, each with differing time horizons. The "Ultimate Market Timing Model" is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.  ...

The Democrats’ trifecta win explained

Last weekend, I conducted an unscientific and low sample Twitter poll on the market perception of the Georgia special Senate elections. The results were surprising. Respondents were bullish on both a Republican and Democratic sweep.     As the results of the Georgia Senate race became clear, the analyst writing under the pseudonym Jesse Livermore...

The Roaring 20’s scenario, and what could go wrong

Happy New Year! Investors were happy to see the tumultuous 2020 come to a close. The past year has been one with little precedent. A pandemic brought the global economy to a screeching halt. The stock market crashed, and it was followed by an unprecedented level of fiscal and monetary response from authorities around the...

Debunking the Buffett Indicator

There has been some recent hand wringing over Warren Buffett's so-called favorite indicator, the market cap to GDP ratio. This ratio has rocketed to new all-time highs, indicating nosebleed valuation conditions for the stock market.     Worries about this ratio are overblown. Here's why.     Dissecting market cap to GDP Let's begin by...