As we kickoff the trading week with stocks set to open lower, the US dollar rallying and gold still consolidating massive gains, some things never change.
HUMAN NATURE: Some Things Never Change
September 8 (King World News) – Peter Boockvar: If there is one thing that NEVER changes it’s human nature and when markets reach a euphoric stage, a change in trend is rarely far away. For purposes here I’ll use the 60 read in the Investors Intelligence survey and the 3x euphoric level in the Citi index of last week as a way of measuring that euphoria.
You can also add in the multi year low in the put/call ratios. But, the final phase of the recent blowoff really started in early June when Hertz stock, in bankruptcy, rallied to the point where the court almost allowed them to sell equity when the stock rallied from under $1 to $6 in a matter of days. Add the stock split mania of Tesla (and hoped for inclusion into the S&P 500) and Apple where the former was worth in market cap the combined size of Ford, GM, BMW, Volkswagon, Fiat Chrysler, Toyoda, and Honda while selling less than 10% of the cars and the latter was worth the entire market cap of the Russell 2000…
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And there are other tales to be told, Softbank being the new story, with the underlying theme of the Fed’s monetary policy encouraging the drunken speculation by scaring money out of zero/low yielding securities. The question from here then is whether the froth being cut out of the market is a well needed shaking of the tree that recharges things for another run higher or this is it. Either way, the valuations of certain areas of the market reached the point of extreme where future returns will be harder to come by. No one questions the fundamentals of tech right now, to highlight that sector, but the price to be paid for that growth.
Updated Citi Panic/Euphoria index which came off the boil but is still more than 2x the euphoria line of .41.
The other noteworthy thing about markets last week was that the US Treasury market was no flight to safety. The 10 yr yield started the week at .724% and ended the week at .719%. The 30 yr yield fell only 3 bps. Both are lower today but the point is with longer term rates already so low, the Treasury market will not be the same port in a storm that it has been in the past. The same can be said of course with sovereign bonds everywhere.
The August NFIB small business optimism index rose 1.4 pts m/o/m to 100.2. Plans to Hire, Positions Not Able to Fill, and Plans to Increase Inventory all rose.
Capital spending plans were unchanged m/o/m. Those that said it’s a Good Time to Expand rose 1 pt but those that Expect a Better Economy fell to a 5 month low and those that Expect Higher Sales is at a 3 month low. As for income growth, current Compensation rose to a 5 month high, up 3 pts but future Compensation Plans was unchanged. Corporate earnings trends improved by 7 pts but is still deeply negative at -25. Credit conditions were little changed. Lastly, those expecting Higher Selling Prices rose 3 pts and is above zero for the 1st time since March.
Bill Dunkelberg, the NFIB chief economist summed up the report by saying:
“Small businesses are working hard to recover from the state shutdowns and effects of COVID. We are seeing areas of improvement in the small business economy, as job openings and plans to hire are increasing, but many small businesses are still struggling and are uncertain about what the future will hold.”
While this number is never market moving, if there is ever a front line measure of the economy in the age of COVID it is small business. Keep in mind that this index peaked in August 2018 at 108.8 just as the tariff war with China really started to heat up and was 104.5 in February 2020 just before everything hit the fan.
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