For those technical analysis lovers, the S&P 500 index has entered the dreaded death cross. Meaning that the S&P 500 index has fallen below the 50 and 200 days moving averages.
However, the Hindenburg Omen is NOT flashing red.
Analysts forecasts for S&P 500 profit growth in 2019 is pretty Hindenburg-ie.
We are in Castle De’ath. But The Fed, China, Brexit or any of the current uncertainties can send the S&P 500 index flying over the moat into golden cross territory.
Since the beginning of the QE unwind — or “balance sheet normalization,” as the Fed calls it — in October 2017, the Fed has now shed $364 billion.
Of course, The Fed still have a long way to go to unwind its $4 trillion balance sheet. But The Fed is, at the same time, raising its target rate (although through confusing messaging).
The S&P 500 index and the NAREIT All Equity (Real Estate Investment Trust) indices are soaring along nicely with The Fed’s balance sheet expansion (aka, low interest rates), but are experiencing rather dramatic volatiity in the face of a shrinking balance sheet and rising Fed target rate.
And yes, volatility is increasing with Fed unwind and target rate increases.
SMART Money Flow Index? The decline coincides with The Fed’s unwinding on its Treasury positions.
Bubble you ask? Instead of “bubble” or “collapse,” the Fed uses “valuation pressures” and “broad adjustment in prices.”
To quote the late, great Isaac Hayes from Reindeer Games, “There are monsters in the gelatin!!”