Market Cycle - Where Are We and What Are You Doing About It?

UFOinsider's picture
Rank: Human | banana points 14,826

Markets are cyclical, interest rate cycles are inevitable, and even when history doesn't repeat itself...it tends to rhyme.

So where are we in the market cycle? I have my own opinions but yours are more interesting. Take a look at the chart and weigh in. What's your strategy at this point? How much of your money is where your mouth is?

Comments (43)

Feb 4, 2019

Feels a little like "return to normal"... but I could be wrong by multiple years. Probably am.

Feb 6, 2019

Agreed. My view is that interest rates cannot rise without causing a serious drawdown in equities due to decreased earnings unless real sales growth continues to grow considerably. The S&P 500 earnings yield is currently roughly 4.75% - 2% below the 150-year trailing median. How low can this go before valuations reset?

The attached cart shows that real sales growth is nearly topped out - this is why the immigration debate is so furious. The American birth rate continue to drop which negatively impacts sales which hampers earnings growth.

We all pay so much attention to earnings, but earnings historically have been driven by revenue growth. The period of unlimited earnings growth via cheaper and cheaper cost of increasingly plentiful debt is over unless we lower rates again, which presents other serious consequences.

    • 2
Feb 4, 2019

Never seen these descriptions of market cycles, although I don't argue them.

    • 1
Feb 4, 2019

very easy to argue based on the chart that 2017-January 2018 was the media attention (i.e. bitcoin), delusion, new paradigm phase. With the run from February 2018-September 2018 the return to normal until oil collapsed from $85 to $50 in October 2018-December 2018 and all out despair with today's market being more of a return to normal. Perhaps your post was a thinly veiled reference to that already.

Looking forward, I think the market will work as long as the Fed plays ball (doesn't raise rates this year) and trade doesn't worsen. Certainly any further hawkish-ness or increase in tariffs puts the market more sideways than an up or downtrend

    • 3
Feb 5, 2019

SBs for all, BUMP

    • 1
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Feb 5, 2019

BTMFD

    • 1
Feb 5, 2019

Personally, I think fundamentals are weak (basically across the globe), there are major debt issues (also across the globe and sectors), and government spending is strained (across the globe). With valuations still at somewhat frothy levels (if you assume earnings are above trend right now), it's hard to argue for bullishness. Having said that, central banks could keep juicing returns, and I know I'm not smart enough to time complex macroeconomic trends. My portfolio is a little over half equities, 20% cash, 15% bonds, and the rest other random stuff, but the risk assets are all my outstanding portfolio, and all new investment is going into cash. This way, I won't miss out if good times continue, but I'll have cash to spend if it goes the other way.

    • 2
Feb 5, 2019

O, and for what it's worth, I would agree it certainly looks like we're at the "return to normal" part of the curve.

    • 1
Feb 6, 2019

Bull trap. If you look at economic indicators, like PMI data, you'll find that, globally, the cycle is near its end.

Link: https://tradingeconomics.com/world/composite-pmi
The US is doing better, but the picture is mixed. Consumer sentiment is falling as both manufacturing and service sector indicators have moved down.

Some notes:
- Oil is a forward indicator of global demand; but when prices are low it represents an increase in the purchasing power of the consumer. Therefore, low oil prices might help the consumer sustain the service side of the economy (even as manufacturing seems likely to slide close to contraction). Supply might be driving the price right now (new pipeline and upgrades by this summer), which means that as an indicator of demand, it's giving a muddled picture.
- Sentiment and manufacturing across the globe is cooling, this is the strongest case for my view (bull trap). The market, IMO, has limited upside especially with earnings revisions. S&P bottom-up EPS estimates dropped by 4.1% in Q1 alone...

    • 3
Feb 6, 2019

I think I agree with you, generally, in that we are in a bull trap.

As I look at the markets I simply don't see the next catalyst that can bring us to the upside...

Corporate Earnings - Not a chance. They are mixed at best, and at worst all the guidance is awful which might give us a few beats over the next few quarters but the tax cuts seem to be wearing off and overall the consumer is starting to be stretched it seems. Oh, and don't forget about trade issues actually having an impact.

US Policy - Good luck with this. In a few months, nothing will be getting done until the next election so forget that. Trade policy isn't going to get much better. The Fed already seems to be gearing up for a cut at some point, or at the very least a delay of any further rate changes.

Global Growth - ......... nope. Nothing to see here. Brexit is a mess, Europe is still a mess, Asia is as much if not more of a mess - depending on how you look at their numbers. EM might be worth a look since it's been shot to all hell - but is it really going to save the day?

Overall, asset prices are through the roof across the board. Even unicorn stocks aren't coming public and at some point people will sober up and realize that long term, selling at a loss and making it up in volume isn't sustainable - even for a technology company... ha ha ha. I guess my overall sense is that when i look at things, they just don't make sense to me. Valuations aren't... terrible, across the board at least.

Yields... make even less sense. The curve is outrageously flat to inverted in some segments at times, though it oscillates. Corporate spreads are egregiously close in, high yield is the same way - when those start to crack or show larger signs of strain that's what where you will see a lot of bloodshed. Realistically, with debt loads that exist we have to keep rates low and structurally we are higher than the rest of the world, so we have a large bid that holds down rates - if that goes away, off to the races.

This is a long way of saying - i'm so confused it hurts. I own a few stocks right now that i bought in the last bloodshed - i might punt them and go back to cash. Or i might buy more. Or i might short things......... ugh.

    • 5
Most Helpful
Feb 6, 2019

I think you make a lot of reasonable points that speak to your short-run expectations on where the market may be headed. You say you're confused, but you make a relatively good case for heading sideways until some unforeseen catalyst prompts a market move (probably down given your writing). In my opinion, there are a number of one-off events that could trigger a sell-off with few that would precipitate a rally. Exogenous shocks don't ordinarily override prevailing market sentiments except when the prevailing sentiment is indecision.

If your 'confusion' represents a broader lack of conviction by a sufficiently large percentage of investors, an exogenous shock will likely dictate the next major move. I find such events to be downside risks and would therefore invest with a risk-off bias in the short-run.

In the long-run, credit and business cycles are far less important than the upcoming/ongoing technological disruption associated with automation due to AI. It impacts everything on a 5-10 year horizon. It should be discussed all the time when considering long-term investments and retirement portfolios, but Average Joe's financial planner at Fidelity doesn't know shit about it and only barely understands portfolio theory from 40 or 50 years ago as if a diversified asset allocation is some new hot idea.

Trading decisions and investing decisions are two very different things in that regard. Asking, "What do I do right now?" is less interesting than asking, "How do I plan for my retirement?" or "What do I do with my money?". The prevailing wisdom for Average Joe is to put his money into a diversified pool of stocks, bonds, REITs, etc, and to essentially leave it alone in the lowest cost funds so as to not hemorrhage cash due to fees. But that advice is predicated on assumptions on the labor market essentially becoming increasingly productive, larger and more robust as technological disruptions have historically increased the demand for labor. Until the 1990s, this was due to the increased productivity of workers shifting away from lower-productivity tasks to higher productivity ones. That relationship broke down in the late 1990s according to work by Daron Acemoglu at MIT, one of the world's leading labor economists.

In any case, it's unclear to me that the current wave of automation will necessarily result in productivity increases in the labor pool. If this turns out to be the case, the Luddites will have had a point in worrying about what Acemoglu calls the 'displacement effect' associated with automation. If AI displaces tasks attributed to workers without replacing them with new, higher-value tasks, then the current iteration of automation will decrease both wages and employment. This is an ongoing problem that should be considered as a primary driving factor underlying productivity, which in turn impacts profitability, wages and employment.

This will unevenly impact different industries and regions which should influence your investing decisions. After all, buying real estate in Detroit in the 1980s wasn't a great idea, was it? It certainly wasn't as good an idea as buying real estate in San Francisco in the 1980s. The effects of industrial automation had outsize impacts on Detroit that weren't felt in, say, NY or SF.

I digress, but the point is this: any macro analysis of primary catalysts for market moves needs to be predicated on productivity. It speaks to the uses of capital. It gives you an idea of the industries that might outperform and the ones that might underperform. It gives you an idea of the countries best positioned for those changes. And it gives you an idea of the fiscal and monetary policy decisions those countries might make given their relative positioning on a changing world stage over time.

I believe AI will have a much greater impact on driving productivity gains across markets than the combined effects of climate change, interest rate moves, geopolitical risks, or demographics. I think it's difficult to overstate how ill-prepared most people are for such changes especially since even the greatest prognosticators on Wall Street can't seem to figure out ways to include these changes in their medium-term projections on earnings. Equity analysts should be fucking embarrassed and then collectively urinated upon.

    • 16
    • 1
Feb 6, 2019

fair enough, but how do you square the fact that GDP growth and sentiment (assuming you mean consumer/business rather than investor) have absolutely no correlation with equity returns? in other words, I don't dispute that PMI numbers look like things are softening, although idk how you can say we're near the end. in DM, still over 50 and the only ones that turned outright negative from Nov-Dec were France and to a lesser extent Spain (still expansionary). In EM, everyone knows China is slowing, but I'm looking at a broad EM PMI that went from 50.8 to 50.3, hardly a major change in my opinion.

I guess what I'm saying is that it'd be foolish to ignore the economy, but from a long-only perspective, I don't see why you're getting caught up in this minutiae. there's always data to back any thesis (bullish/bearish/neutral/gold), but here's the point: if these indicators had any long term reliability with equity returns, more people would be using them. the facts remain: they don't have an effect on equity returns, and in sentiment's case, a negative correlation (which would argue that you should buy).

now, if you're a macro trader, you're far smarter than I am, but the vast majority of this forum (I hope) isn't trading, but investing for retirement, and the mixed data today are no reason you should sell SPY, EFA, EEM, or a diversified basket of quality names.

as for where my money is? I made that pretty clear in my thread a ways back.we dove in head first in December for clients who had the cash and were a little early on our early November moves (although they're still showing profits). holding tight for now, the market moved up too much too fast and occasionally (for those new to the game) there is a "re-test" of the lows. one of two things will happen in my opinion

  1. we go back to the lows and then bounce around, ending the year somewhere between 2700-3000, earnings growth is slower, but we avoid a recession, some companies surprise to the upside (because newsflash, things aren't that bad)
  2. we go back to the lows and blast right through them, entering another phase of the bear market which takes 6months+ to sort out, exacerbated by political incompetence. ends up being a year like 1990 or 1994, with basically flat returns

either way, the preponderance of evidence suggests that these leading indicators may be good predictors of economic activity, but that they are notoriously poor at forecasting equity returns. until I've been shown data to the contrary, I'm sticking with my strategy: high quality, self funding companies, diversified globally, with cash on the side to pick up bargains when people freak out

    • 6
Feb 6, 2019

Great response. In my opinion, all investing is an active decision, and therefore, should be predicated on information (data) and not on heuristics (mental shortcuts). For example, it is a commonly held belief that equities go up in the long run--but how true is this? As @brotherbear eloquently points out, paradigms shift--and they shift violently. The danger of finding comfort in a heuristic such as "equity markets will go up in the long run" is that the "inputs" that made that statement true in the past, may no longer be true. Referring to AI and automation, for example, this is clearly a paradigm shift which will change the employer-employee relationship and completely wipe out various types of jobs.

In regards to using economic indicators to evaluate the market, here's the Wilshire 5000 (a better measure of the US stock market) annualized returns vs. real gdp annualized growth rates:
https://fred.stlouisfed.org/graph/fredgraph.png?g=... Market to GDP

Using PMI to gauge economic performance: https://research.stlouisfed.org/publications/econo...
There are, of course, other indicators that correlate more or that correlate more closer to certain sectors of the economy. Economic analysis is not a panacea and does not mean that you can make money by trading on the data. It just tells you where we are today. You can then look at long-term trends, listen to experts, and develop a robust theory on what you believe is happening--and then use economic indicators to measure how right/wrong you are.

For example, my bearish thesis of US equity markets is based upon my theory that US economic growth will slow since the issues behind secular stagnation were not absolved, and therefore, short term economic upswings will lead to subsequent (longer) periods of more anemic growth. My theory is based upon analyzing the primary drivers of long-term growth (labor, productivity, and capital) and my informed view on them. This then goes into technical stuff (inflation expectations -> exchange and interest rates, gdp growth -> total corporate revenue growth), which determines economic differentials, expected equity benchmark returns, etc. This is super technical and isn't required to invest successfully. To invest successfully you need to find secular trends (automation and AI) while understanding market context (bearish/bullish) in order to determine your beta exposure and how you wish to manage risk. In @brotherbear s example, it sounds like he uses a simple approach managing correlations-- real assets that are not correlated with the direct investments he makes in moonshots/private entities. My old boss use to tell me "go deep, but uncorrelated" (in other words, take concentrated risks in uncorrelated trades).

    • 6
Feb 6, 2019

N/A

    • 1
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Feb 6, 2019

Hofstra university? Nice try Bobby Axelrod, for once in your life use your own analysis to invest instead of getting tips from other people

    • 2
Feb 5, 2019

More SBs for all, BUMP BUMP BUMP

    • 2
Feb 6, 2019

even though I think you & I have polar opposite views (or had), I tremendously appreciate you starting this thoughtful discussion. WSO needs more of this, experienced guys need to check their thinking with counterpoints, and new monkeys need good content instead of CNBC's 5 stocks to buy now or one of the ponytail twins' options trades on glu mobile that only works if kim K gets 15mm instagram likes a week

    • 6
Feb 6, 2019

What do you have against the ponytail twins? Or BK's crypto corner with hot tips on the direction of bitcoin?

Everyone needs some offsetting losses at the end of the year.

    • 2
Feb 5, 2019

Right back at ya :)

Feb 10, 2019

This has been a more worthwhile read for me than anything I can find in mainstream media. Thanks for the viewpoints and commentary, @thebrofessor and @brotherbear.

Feb 11, 2019
thebrofessor:

even though I think you & I have polar opposite views (or had), I tremendously appreciate you starting this thoughtful discussion. WSO needs more of this, experienced guys need to check their thinking with counterpoints, and new monkeys need good content instead of CNBC's 5 stocks to buy now or one of the ponytail twins' options trades on glu mobile that only works if kim K gets 15mm instagram likes a week

I would never take advice from anyone on anything who thinks being mostly bald with a pony tail is a good decision.

    • 2
Feb 8, 2019

50% equities, googl gm dis hd aapl and a few others + assortment of international rare earth metal mining companies.
50% private RE

To answer OP question... haven't really got a clue, but I'm young with a multi decade time horizon so oh well

Cultivating mass and wealth since '95

    • 1
Feb 9, 2019

I don't know but I have all my money in T-bills & High Yields savings just waiting for the day.

I bet there will be many "bull traps" and "return to "normals"and we won't really notice unless something flips the switch.

    • 1
Feb 5, 2019

++more SB

BUMP BUMP BUMP

Feb 11, 2019

I'll toss my hat into the ring here as it's been a few months since I commented on Brofessor's post back in the October selloff, and what a difference a few months can make. Let me first preface this post by saying that professionally, I do not try and time the market. As an Industrials analyst, I do have to maintain some kind of macro perspective, but the bulk of my calls are fundamentally driven by forward outlook and valuation relative to that outlook. That said, in my personal account I am half a long-term investor (similar to how I try and invest professionally) and half a complete degenerate gambler who tries to time the market. Now that the disclosure is out of the way, I'm starting to peel back on my small cap trade. FINALLY taking some gains on it after painfully riding it down in December. The macro has legitimately started to deteriorate a bit and while I'm still leaning bullish on more of a sentiment call, I'm much more cautious than I was in October.

Rates: We never got the inflation I was looking for, and furthermore the Fed seems to have panicked a bit given the sharp movement in markets in December. Real rates are still close to 0 and I have a hard time believing that the US economy can't handle rates as they currently stand. So I think it's less likely that we will have a Fed-induced recession without meaningful inflation, regardless of whether we're at full employment or not. So I am keeping an eye on commodity prices, which don't seem poised to climb right now (lumber making a comeback though, what a chart). The yield curve is still extraordinarily flat, with parts of the shorter end inverted. I continue to believe that the 3M/5Y spread is more relevant for actual lending, and that curve did invert briefly which has put me on alert. However, spreads on the shorter end of the curve are more prone to false signals and I will continue to monitor the entirety of the curve for a more concrete signal. Credit spreads did widen during the selloff, but not meaningfully, and have since come back in a bit. Further widening in credit spreads would be telling, especially if it is in absence of equity volatility (as I think the widening we did get was more a bi-product of the equity volatility rather than legitimate credit concerns). Delinquencies are still low, as are default rates. So overall on rates, there are a number of items to keep an eye on but nothing that is definitively bearish (nor definitively bullish).

Employment: This is something to watch. Unemployment has ticked up slightly (both U6 and U3) and it would be concerning if that continued. The participation rate has also ticked up, but I don't think you can simply write off the uptick in U3/6 to that, given that jobless claims have also ticked up. Now unemployment and jobless claims are coming off tough comps, multi-decade lows, but it would be troubling if they began to trend in the other direction. Definitely something to keep an eye on. Small businesses continue to claim that finding qualified workers is their biggest problem, which has not yet translated into strong wage growth as one might expect (some, but not strong). Voluntary job leavers continue to leave at a relatively high rate, which would still be indicative of a strong labor market. Mixed signals here overall, but not as positive as it was back in October.

Sentiment: Consumer confidence is starting to come off, which is typically a solid forward indicator. Again, it is coming off tough comps, but it's possible that the effects the tax cut are fading and the government shut down, the trade war, and the equity sell off are all finally starting to weigh on it. When consumers are not confident in the forward outlook, they will not spend...so it would be concerning if that were to roll over further. Small business optimism is still relatively high, though off its highs, and the % of respondents remarking that it is a good time to expand has come off even more. Sentiment around equity markets specifically still seems to be bearishly tilted. The consensus seems to be that we will retest the December lows at a minimum, with others calling for further deterioration from there. This negative market sentiment is one thing that keeps me leaning bullish. As I remarked before, the market climbs the wall of worry, and there seems to be plenty of worry out there. A lot of guys have missed this rally off the December lows, and I think that sets up for two possible scenarios. The first, the market never really pulls back or retests anything, just continues to grind higher. Guys come off of the sidelines and are forced to chase the market up....I would view this scenario as quite a bearish setup if the macro continues to deteriorate. This is not my base case assumption. My base case scenario is that we do get a pull back, which serves to reinforce negative sentiment (I knew it was a bull trap!). However with the consensus looking for a full retest, I would expect the pullback to be more-shallow and then resume the climb higher. I think guys could again chase the market up in this scenario, which would present a good position to exit if the macro continued to deteriorate, but would also be a healthier path for the market if the macro stabilized. In the first scenario, even if the macro stabilized, I think the rally could get easily overdone and sentiment could get a little toppy. The other consensus call is a recession in 2020. Again, economists have almost a 100% hit rate at MISSING recession forecasts. So if you believe that they will be wrong this time as well, that would imply that we would either have a recession either before or after 2020 (if you believe that we will continue to have recessions...Yellen doesn't think so), and possibly we are already in one. If 5-years from now we looked back at the macro and the NBER bars are drawn on the charts, I would not be shocked that it officially started in 2019 given the deterioration we've had so far.

I'll end it there, equities HAD repriced to much more attractive levels, but have come back somewhat aggressively while the macro data has deteriorated. I'm not ready to pull the chute yet, but I've definitely got my hand closer to the cord than I did when I wrote about where I thought we were last October. Sold some of my small cap position personally and within my sector professionally, the really attractively priced names have become much less attractive in a very short period of time. So I think there's enough there now to have me second guessing a continued rally, but I will continue to let the data dictate my stance.

The degenerate gambler in me is looking for us to either top out now, but possibly as high as 2800, and then looking for a pull back to 2500 or so with as low as 2444 possible. I would probably look to deploy some cash in that area IF the macro doesn't get materially worse in the coming months. I'll tell you what though, at least the markets are interesting again unlike 2017 with a sub-10 vix.

    • 6
Feb 5, 2019
Secyh62:

I'll toss my hat into the ring here as it's been a few months since I commented on Brofessor's post back in the October selloff, and what a difference a few months can make. Let me first preface this post by saying that professionally, I do not try and time the market. As an Industrials analyst, I do have to maintain some kind of macro perspective, but the bulk of my calls are fundamentally driven by forward outlook and valuation relative to that outlook. That said, in my personal account I am half a long-term investor (similar to how I try and invest professionally) and half a complete degenerate gambler who tries to time the market. Now that the disclosure is out of the way, I'm starting to peel back on my small cap trade. FINALLY taking some gains on it after painfully riding it down in December. The macro has legitimately started to deteriorate a bit and while I'm still leaning bullish on more of a sentiment call, I'm much more cautious than I was in October.

Rates: We never got the inflation I was looking for, and furthermore the Fed seems to have panicked a bit given the sharp movement in markets in December. Real rates are still close to 0 and I have a hard time believing that the US economy can't handle rates as they currently stand. So I think it's less likely that we will have a Fed-induced recession without meaningful inflation, regardless of whether we're at full employment or not. So I am keeping an eye on commodity prices, which don't seem poised to climb right now (lumber making a comeback though, what a chart). The yield curve is still extraordinarily flat, with parts of the shorter end inverted. I continue to believe that the 3M/5Y spread is more relevant for actual lending, and that curve did invert briefly which has put me on alert. However, spreads on the shorter end of the curve are more prone to false signals and I will continue to monitor the entirety of the curve for a more concrete signal. Credit spreads did widen during the selloff, but not meaningfully, and have since come back in a bit. Further widening in credit spreads would be telling, especially if it is in absence of equity volatility (as I think the widening we did get was more a bi-product of the equity volatility rather than legitimate credit concerns). Delinquencies are still low, as are default rates. So overall on rates, there are a number of items to keep an eye on but nothing that is definitively bearish (nor definitively bullish).

Employment: This is something to watch. Unemployment has ticked up slightly (both U6 and U3) and it would be concerning if that continued. The participation rate has also ticked up, but I don't think you can simply write off the uptick in U3/6 to that, given that jobless claims have also ticked up. Now unemployment and jobless claims are coming off tough comps, multi-decade lows, but it would be troubling if they began to trend in the other direction. Definitely something to keep an eye on. Small businesses continue to claim that finding qualified workers is their biggest problem, which has not yet translated into strong wage growth as one might expect (some, but not strong). Voluntary job leavers continue to leave at a relatively high rate, which would still be indicative of a strong labor market. Mixed signals here overall, but not as positive as it was back in October.

Sentiment: Consumer confidence is starting to come off, which is typically a solid forward indicator. Again, it is coming off tough comps, but it's possible that the effects the tax cut are fading and the government shut down, the trade war, and the equity sell off are all finally starting to weigh on it. When consumers are not confident in the forward outlook, they will not spend...so it would be concerning if that were to roll over further. Small business optimism is still relatively high, though off its highs, and the % of respondents remarking that it is a good time to expand has come off even more. Sentiment around equity markets specifically still seems to be bearishly tilted. The consensus seems to be that we will retest the December lows at a minimum, with others calling for further deterioration from there. This negative market sentiment is one thing that keeps me leaning bullish. As I remarked before, the market climbs the wall of worry, and there seems to be plenty of worry out there. A lot of guys have missed this rally off the December lows, and I think that sets up for two possible scenarios. The first, the market never really pulls back or retests anything, just continues to grind higher. Guys come off of the sidelines and are forced to chase the market up....I would view this scenario as quite a bearish setup if the macro continues to deteriorate. This is not my base case assumption. My base case scenario is that we do get a pull back, which serves to reinforce negative sentiment (I knew it was a bull trap!). However with the consensus looking for a full retest, I would expect the pullback to be more-shallow and then resume the climb higher. I think guys could again chase the market up in this scenario, which would present a good position to exit if the macro continued to deteriorate, but would also be a healthier path for the market if the macro stabilized. In the first scenario, even if the macro stabilized, I think the rally could get easily overdone and sentiment could get a little toppy. The other consensus call is a recession in 2020. Again, economists have almost a 100% hit rate at MISSING recession forecasts. So if you believe that they will be wrong this time as well, that would imply that we would either have a recession either before or after 2020 (if you believe that we will continue to have recessions...Yellen doesn't think so), and possibly we are already in one. If 5-years from now we looked back at the macro and the NBER bars are drawn on the charts, I would not be shocked that it officially started in 2019 given the deterioration we've had so far.

I'll end it there, equities HAD repriced to much more attractive levels, but have come back somewhat aggressively while the macro data has deteriorated. I'm not ready to pull the chute yet, but I've definitely got my hand closer to the cord than I did when I wrote about where I thought we were last October. Sold some of my small cap position personally and within my sector professionally, the really attractively priced names have become much less attractive in a very short period of time. So I think there's enough there now to have me second guessing a continued rally, but I will continue to let the data dictate my stance.

The degenerate gambler in me is looking for us to either top out now, but possibly as high as 2800, and then looking for a pull back to 2500 or so with as low as 2444 possible. I would probably look to deploy some cash in that area IF the macro doesn't get materially worse in the coming months. I'll tell you what though, at least the markets are interesting again unlike 2017 with a sub-10 vix.

So...it could keep going up but the stops are super tight, yes? :)

Thanks for the thoughtful analysis / market summary

    • 3
Feb 11, 2019

Ya the more we go up without a healthy pause/pull back the more I feel like we're being set up for something aggressive to the downside...

    • 1
Feb 16, 2019

This is some great analysis. I don't have as much time these days to monitor the markets and as many indicators as you've talked through. But I always try to have a broader view on (i) sentiment and (ii) relative fundamentals. Best buying opportunities of course are bearish sentiment and improving fundamentals. Time to run when there is exuberant optimism and detiorating fundamentals. Sentiment still appears on the bearish side when you look at recession forecasts, portfolio equity weightings, equity fund flows, etc. Fundamentals appear to be showing some initial signs of detioration, though I think we need a few more turns of the cards to see that it's a real trend rather than a bump in the road. A handful of leading indicators are starting to turn the wrong way and earnings estimates are being revised down at a pretty good pace. I stopped adding to my equity positions since the run up in January, but I'm not pulling the chord out yet either. Feels like a wait and see mode for the time being.

    • 2
Feb 11, 2019

I think you're spot on. With regards to the deterioration in fundamentals especially, always have to be careful not to extrapolate a few bad data points into a new trend that doesn't exist. I'm trying to acknowledge that the government shutdown could have caused some distortions and remember that a lot of the data is coming off record highs, but to also be aware that it really could be the start of something larger. We're at an interesting point, it's anyone's guess as to what is next, but it is always entertaining to have these discussions.

    • 1