Hey folks, as a reminder the financial markets will be closed this coming Monday although we will see limited action in the futures markets. I hope everyone will enjoy the extended weekend.
• The markets rapid rise in 2020 shows momentum is still very strong across all US Indexes…and after an amazing year in 2019 we’ve seen the Bond markets being unusually kind and support to overall market direction…we are also seeing a rise in PE Multiples to heights not seen since early 2000…but we still can see continued moves higher in price action if interest rates remain low with subdued inflation…I am telling members of our User Group that yes, the markets are overbought, and a dip in price is more likely but I have seen nothing in the charts or Economic Indicators to indicate buyers would not step in and scoop up more shares on the pullback…so the “buy the dip” mantra still remains…
• We’ve seen lower yields enhance the attractiveness of equity markets which gave rise to that favorite term TINA (there is no other alternative)…also, lower Bond Yields have induced corporations to borrow more (over $20 billion in 2020 so far) which is used to help stock buybacks enhancing EPS….in 2020 we’ve also seen an inflow of over $1 Trillion into bond funds….but too much of a “good thing” comes with much higher risks as well; –and in this case will be the possibility of higher inflation due to higher wage growth…this in turn would raise borrowing costs and thus impact EPS and increase default rates in the Junk Bond Markets…thus far in the Corporate Bond Markets the yield spread between Junk and Investment Grade debt is much lower than the historical average of 5.5%…this shows money is still easy…
• Globally, we have seen the large $14 Trillion in negative rates come down to about $11 Trillion which is still very high and unsustainable but it is moving in the right direction…We’ve seen the US FED under Jerome “Power Ranger Boom-Boom Powell” announcing they will issue new 20 Year Bonds but the interest was not as high as expected so this drove up interest rates on the back in of the duration curve while the Repo market is flush with new Fed money which drives down rates on the front end of the curve…all of which having a tendency to steepen the Yield Curve…Banks love this type of environment..
• We also saw the Phase I Trade Deal with China get signed and price action was happy with the results; -regardless of personal opinions or whether it will last, for the moment price action had a favorable response and on back of the USMCA Trade Deal signature between Mexico, Canada and the US all served up a nice week for the US Markets…
Enjoy this Holiday Weekend’s Round-Up;
Don’t Be A Rat Brain Trader – Be the Red Striped Zebra !!
Trade Smart !