Trading the Indices on Fundamentals

The US is not the only market experiencing exuberance. The ASX Information Technology sector now at 60x forward earnings is the most expensive sector multiple in at least 30 years and possibly ever. This record surpasses all past booms and bubbles actually reaching 64x in July.

1.png
 
He is an interesting quote from Damien Klassen of Nucleus Wealth: "The stock market is at valuations that discount no risk. Indeed, they are now the risk."

With the average earnings of the S&P500 companies at 44% below what it was the last time markets were at these levels, I have to agree to the above statement. Markets are ignoring the figures moving purely on the notion that the economy is getting better, however, most optimistic economic forecasts say it will not be until the end of 2021 before earnings return to last Fed levels, and the "optimism" is based on a vaccine being available within 6 months. Markets are, therefore, at best, 18 months ahead of the economy.
 
Last weekly jobless figure increased bringing the overall jobless claims to over 16 million while the second-quarter GDP shows the US economy has contracted 32.9% at an annualized rate, the most on record going back to the 1940s. Markets, by and large, ignored both figures, also ignoring the 150,000 virus deaths milestone, but are reacting to the impasse on a stimulus agreement. DOW is almost 2% down having lost 1,000 points since mid-July. GDP figures for the EURO Zone have also been released and the Europeans are taking notice of that, most EU markets are >4% down.
 
Last edited:
Monday saw a rally despite the continuing impasse on renewing the expired stimulus. The markets reacted to the impasse on Friday but ignored the same event on Monday. I can only say that there is way too much optimism expressed by the retail players. Such optimism on hope alone usually ends in tears for the late entrants.
 
Laissez Faire said:
Surely the fundamentals and the markets must be way out of balance now, yes?
More...
Indeed they are, Gold broke the $2,000 barrier overnight, a move higher in bonds also put the US ten years near the all-time spike high of March this year and lastly the VIX around 26 is 12 units higher than it was when Indices were at these levels last Feb. The safe-haven markets seem to be signalling higher concern for the global growth outlook, with obvious implications for risk assets like shares. Will be interesting to see how the retail investor will react finding-out that the helicopter money is something that might actually not last forever.

Many professional money managers bought at the lows in March and April, these are now crystalizing their profits by selling to the retail investor... guess who will be left holding the bag when markets eventually realign? Then there will be the usual outcry that the rich get richer while etc, etc... When people do foolish things then perhaps they need to accept that they are the fools.
 
Last edited:
FXtrader8911 said:
Indeed they are, Gold broke the $2,000 barrier overnight, a move higher in bonds also put the US ten years near the all-time spike high of March this year and lastly the VIX around 26 is 12 units higher than it was when Indices were at these levels last Feb. The safe-haven markets seem to be signalling higher concern for the global growth outlook, with obvious implications for risk assets like shares. Will be interesting to see how the retail investor will react finding-out that the helicopter money is something that might actually not last forever.

Many professional money managers bought at the lows in March and April, these are now crystalizing their profits by selling to the retail investor... guess who will be left holding the bag when markets eventually realign? Then there will be the usual outcry that the rich get richer while etc, etc... When people do foolish things then perhaps they need to accept that they are the fools.
More...
How are you positioned? I'm short /ES 3316 and plan to scale in if we go to ATH. Quite confident that we will see a pullback by election.
 
New jobless claims came in at 1.2m bringing the total unemployment number to over 16m, markets celebrated the numbers despite no extension of the extra benefits.... makes one want to say "I don't f*#%& believe it!"

I have never seen markets rally in the face of recession and uncertainty but there you are, there's a first for everything.

The safe heavens keep warning of a sell-off, in particular, both gold and VIX futures are up and the correlation between the EURO zone markets and those in the US have broken, I guess the Europeans see the writing on the wall that the US players are ignoring.
 
They do say bull markets end in euphoria. The patterns on /ES and /NQ are that of a blow-off top. Similar to June 5, three days before the 5% correction.

As you mentioned, European indices look as if they are going to fall off a cliff.
 
You must log in or register to reply here.
Back
Top