One thing is absolutely certain, stock market bulls are out of hand…again.
Stock Markets Bulls Out Of Hand Again
March 11 (King World News) – Peter Boockvar: The bounce back in stocks this week brought out the bulls from the individual investor crowd. They jumped 9.1 pts to 49.4 which is the highest since mid November when it was last above 50. Most of those came from the Neutral side as Bears fell just 1.8 pts to 23.5 which is still the lowest since Christmas Eve. The Bull/Bear spread is the highest since early December. The II figure yesterday did not capture this rebound as it’s of late last week but the more muted mood was a contrarian set up from the bounce. Bulls fell to 51 from 53.9 while Bears rose to 20.6 from 18.6. Assume the former will rise next week and the latter will fall if this rally holds.
The ECB meets today and with yields still so low even after the rise, I just don’t see the credibility in suppressing them back down again from current levels. German, French and Dutch yields are still below zero ten years out. Italy’s 10 yr is just .65% and Portugal sits at .22%. That said, I’m sure Lagarde in her press conference will do her best to verbally contain them from now because Europe literally can’t afford a further rise in rates of note. The euro is bouncing ahead of it but with it back below $1.20 there will be less pressure on Lagarde to talk about it.
What the ECB really should be discussing behind closed doors and maybe at the press conference is how in the heck are they going to eventually taper and raise rates at some point if the vaccine led recovery along with inflation takes hold in coming years. That is a major accident waiting to happen in European bonds if they try. But of course they are solely focused on pedal to the metal easing with QE and negative rates that will be with us for years to come. The question instead is how the markets respond to the macro data in the quarters to come and to what extent they take a stand.
Rally In US Treasuries
With the 10 yr yield back to 1.50% as we continue to work off the VERY oversold situation we touched last week, the level here will be interesting both because it’s a round number and on the day of the terrible 7 yr note auction a few weeks ago, that yield jumped from 1.38% to 1.52%. The 7 yr yield itself on that day spiked by 20 bps to 1.20% and today sits at 1.17%. So, use these levels as perspective right now. In the short term I do believe the highs are in with yields but just a temporary rest before another leg higher.
This said, keep your eye on inflation breakevens where the 10 yr yesterday closed at the highest since July 2014 and the 5 yr at the highest since July 2008.
With respect to stocks, just as we had in 2020 we know we have two markets, tech and everything else and the bifurcation will continue and the direction of interest rates will drive the bus. To repeat what I said coming into the year, predicting the direction of the economy and earnings will be a lot easier with the successful vaccines than figuring out where P/E ratios are going to settle out. I’ll just say simply and state the obvious based on what we’ve seen so far, the higher rates go, the high multiple stocks will see those multiples compress and value/cyclical/commodity/international trade will way outperform. I’ll also repeat what I said about six months ago, energy will outperform FANG.
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Gerald Celente discusses the imminent global boom as the world prepares to open economies, what surprises to expect, as well as what’s next for the gold market and you can listen to it by CLICK HERE OR ON THE IMAGE BELOW.
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