Why is the market holding up so well?
From my perspective, albeit bearish-leaning, it appears that the momentum to the negative is building? Additionally, there are an abnormally high amount oftriggers (e.g., food shortages in Africa / Asia this winter, energy crisis in Europe from Russia cutting things off, crypto domino, snowballing of earnings coming down under new multiple regime, , world war, Taiwan etc.)
Q4 2021 article: "U.S. consumers grew their total debt to $15.6T in the fourth quarter of 2021. This represented the largest quarterly rate of increase since 2007"
Q1 2022 article
Debt then continued to rise through Q1… adding another $266B in Q2 2022… getting to $15.84T. Interestingly, credit card balances are up $71B vs. Q1 2021
April 2022 article:
"Investors are growing more skittish about bonds backed by consumer debt, worried that inflation and slowing growth will increase the number of low-income borrowers falling behind on car payments or credit-card bills."
May 2022 article:
"In March, 8.5% of (60+ days) on their car loans, according to Equifax. That's the second-highest total on record."
June 2022 article:
"Auto defaults up 10 of the past 11 months"
"Home sale cancellations hit highest rate since start of pandemic in June (60,000 home purchases, equating to ~15% of monthly home sales)" This is up from 12.7% in May and 11.2% prior year
Recent tech announcements for slower hiring / hiring freezes
https://fred.stlouisfed.org/series/BCNSDODNS - has doubled since 2011… and is up 50% since 2018
Couple the above with debt as a % of market value of corporate equities… at an all time low (https://fred.stlouisfed.org/series/NCBCMDPMVCE) – would this imply that corporate equities are still broadly overvalued compared to the last 50 years?
"Yields are going up which will make it harder for smaller companies to refinance and thus, it will be harder for them to make debt payments" – thought this was particularly interesting to think about re private equity if there is a pause in M&A or tightening of credit by companies leverages at >6x. What if they are forced to refinance at lower debt levels… say 4.5-5x and at higher rate? Think about the equity destruction…
"Bubble expert Jeremy Grantham predicts weak earnings will hammer stocks - and warns the S&P 500 could plunge another 25%"