S&P 500 Price-to-Sales Ratio ABOVE Dot.com Bubble Level (Will It Continue?)

2020 should be an interesting year. After all, 2019 was one of the best years for the S&P 500 in history.

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Will the bull run continue? Currently, the S&P 500 Price-to-Sales ratio is above the level seen in the Dot.com bubble of 1999.

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All measures of the S&P 500 index are growing with cash flow per share growing at 32.03%!

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On the other hand, the VIX index is a historically LOW levels.

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Are we in a bubble? I call it “The Pepperjack  Turducken Slammer Bubble.” It could deflate and ooze at any time.

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Fed Reverses Course On Balance Sheet Normalization “Temporarily” (Its Always Sunny On Wall Street)

Yes, it is always sunny on Wall Street.  Particularly when The Federal Reserve is running interference like the have since 2007.

The Federal Reserve has reversed course on its unwind of their balance sheet. Allegedly temporarily.

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While The Fed kept rates at 25 basis points for a long time (since 2007), they finally started raising them under Fed Chair Jerome Powell.  And had started lowering them again before an apparent halt.

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Yes, the year-end repo skitter led The Fed to inject > $200 billion of temporary funding for the banks.

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Jerome Powell leading the discussion of Fed policy.

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The Last Time Tech Dominated The Top 5 In The S&P500 Was The 1999 Tech Bubble

The cumulative weight of the top 5 names in the S&P 500 index are the tech giants Apple, Microsoft, Google, Amazon and Facebook.

The last time there was a top 5 concentration this large was during the tech bubble of 1999.

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Will history repeat itself? 

Or just keep dancing?

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Fed Leaves Rates on Hold; Forecasts Show No Change Through 2020

(Bloomberg) — The Federal Reserve left interest rates unchanged and signaled it would stay on hold through 2020, keeping it on the sidelines in an election year while also opening the possibility it might buy short-term coupon-bearing securities to ease money-market strain.

“Our economic outlook remains a favorable one despite global developments and ongoing risks,” Chairman Jerome Powell told a press conference Wednesday in Washington following the decision. “As long as incoming information about the economy remains broadly consistent with this outlook, the current stance of monetary policy likely will remain appropriate.”

The Treasury 10-year yields fell below 1.8%, the dollar declined and U.S. stocks edged higher. Powell spoke after the Federal Open Market Committee held the target range of the federal funds rate steady at 1.5% to 1.75% and its median forecast showed no rate change through next year.

“The FOMC’s monetary policy message is that the Fed is on hold and that it would take some significant change in the outlook to induce the Fed to move,” Roberto Perli, a partner at Cornerstone Macro LLC in Washington, wrote in a note. “Powell, however, made some news when talking about the problems affecting the repo market.”

Powell told reporters that the committee might consider widening reserves management-related Treasuries purchases to include short-term coupon-bearing securities, if necessary, to ease liquidity strains in money markets.

Here is the current Fed “Dots Plot” indicating a hold on rate changes through 2020, but rising after the 2020 election.

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The Fed has helped push relevant rate to around 1.576%.

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Jerome Powell should be happy that someone hasn’t painted a picture of him ala Mexican revolutionary hero Emiliano Zapata.

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Jesse?

China Trade Rally: Investors Rush Into Equity ETFs Just In Time!

There is a China trade rally going on!

A 2% post-Thanksgiving slump in the U.S. stock market couldn’t have come at a worse time for investors in exchange-traded funds. More than $38 billion flowed into equity-focused ETFs in November, the biggest monthly influx in almost two years, data compiled by Bloomberg show. The inflows accounted for about 77% of cash absorbed by U.S. ETFs in the period through Nov. 30, the highest proportion since April.

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Fortunately for the stock market, the latest good news about US trade with China helped bolster a rally. Until we find out tomorrow that …

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Or is it Fools Rush In?

Recession Around The Corner? Evidence From Treasury Market And S&P 500 Earnings Sentiment

It has been the longest bull market in modern history, enabled by massive Central Bank intervention. But with trade wars raging, Brexit, Presidential impeachment over something, etc., there remains a significant risk of a recession over the next 12 months.

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If we look at the normalized change in the 10Y-3M curve minus normalized change in 10Y yields, we can see a heightened recession risk.

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Lower yields and steeper curves are not a good recipe.

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And then we have the decline in S&P 500 earnings estimates.

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Recession coming?

Does Carter’s “Misery Index” (Inflation + Unemployment) Forecast Recession? (No, Near Lowest Level Since Mid-1950s)

Back during the “days of malaise” under President Jimmy Carter, some clever wags thought of the term “misery index” which is the unemployment rate + inflation rate.

Sure enough, the misery index hit its all-time high in May 1980 of 21.93%. But the fear index subsided rapidly following the end of the July 1981 to November 1982 recession.

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But the misery index today is only 5.37%, near the lowest since the mid-1950s. So, no hint of an impending recession.

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Currently, the misery index is near its lowest level since the mid-1950s. The US Unemployment rate is low and is inflation is pretty low resulting in a misery index of 5.37%.

So, no recession in sight according to this indicator.

 

High-Beta Stock Trade Seizes Up Right After Everyone Piled In

High beta investment strategies are great … when the market is rising. But low (and negative beta) strategies seem appropriate when investors anticipate an equity market downturn.

Bloomberg — The market, it’s said, finds a way to maximize the pain. For everyone who fell in love with cyclical shares just in time for them to drop the most in two months this week, it’s an adage they can relate to.

Lurches in retail, technology and commodity stocks are spelling trouble for newly christened macro bulls, sending an exchange-traded fund that tracks high-volatility shares to its first decline since October. Back on top are health care, utilities and real estate, defensive sectors that dominated all year.

While none of the moves were huge, they stung fund managers who hoped economically sensitive industries were tickets to redemption after 71% of them trailed benchmarks through October. Betting on volatile shares has been a hallmark of late-season recovery strategies that looked like a sure thing as the S&P 500 rallied. This week was a reminder they’re not.

High-beta ETF falls for first week in five

Among struggling equity managers, a spate of improving economic reports opened their eyes to the possibility a pivot point was at hand for cyclicals. The veil lifted, mutual funds dutifully raised overweight exposure to the highest level in two years, according to Goldman Sachs, increasing allocations toward industrials and semiconductors and away from utilities and staples.

Here is the Invesco High Beta ETF, having a historic beta (relative to the S&P 500 index) of 1.30.

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The Invesco bond fund has a beta of 0.073.

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Invesco’s mortgage ETF (primarily backed by agency MBS) has a beta of … -0.025 relative to the S&P 500 index.

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Lastly, we have the Invesco Muni fund with a beta of 0.044.

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Of course, investors can hedge market downturns using options.

And we are talking about BETA and not BETO!

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The Unwind of the Fed Balance-Sheet Unwind May Be Buoying Stocks

May be? How about definitely, along with improved expectations for economic growth.

(Bloomberg) — The Federal Reserve says that its Treasury-bill buying program isn’t the same as quantitative easing. But the advance in U.S. equity prices alongside the central bank’s growing balance sheet suggests to some that the effects may not be wildly different.

The central bank, driven by the need to tamp down problems in funding markets with liquidity injections, has expanded its balance sheet from as little as $3.76 trillion at the end of August to $4.05 trillion. That growth has, in effect, already reversed close to 40% of the shrinkage that the Fed began in late 2017. The S&P 500 Index, meanwhile, has climbed more than 7% since the end of August and this week reached new record highs.

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To calm funding markets and improve its control over short-term interest rates, the Fed has used measures including the implementation of repurchase-agreement operations and a $60 billion per month program to acquire T-bills. Officials argue that the T-bill buying isn’t QE because, unlike several of the central bank’s previous asset-purchase programs and reductions to its benchmark rate, it isn’t aimed at lowering long-term borrowing costs and affecting the economy.

Peter Boockvar, chief investment officer at Bleakley Financial Group, says that in the eyes of the market this is just semantics.

“Markets view any increase in the size of the Fed’s balance sheet as QE,” he wrote in a note to clients on Monday.

Stocks, have of course, also been buoyed by other factors, ranging from an improving outlook for global growth and the prospects of a U.S. China-trade deal to better-than-expected earnings and the Fed’s three quarter-point rate cuts this year. But previous QE episodes were certainly instrumental in helping to fuel the post-crisis rally in equities, and signs of history repeating could well be adding to market buoyancy.

Of course, continued robust consumer consumption is helping.

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But California Democrat Eric Swalwell insists on saying “Everything is NOT beautiful.”

Did Eric Swalwell just out himself as Adam Schiff’s whistle blower in the Trump investigation??

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Fed Monkey? Mega Bond Sell-Off Spurs $1.2 Billion Outflow From Treasury Fund As Gold Futures Decline

As Europe shows signs of economic life and US recession fears dim, we are seeing an exodus from long-dated Treasuries and a large turnover in gold futures. But are markets expecting more active intervention by The Fed? (Aka, Fed Monkey).

(Bloomberg) — Investors are pulling the plug on a strategy tracking long-dated Treasuries as U.S. stocks trade near all-time highs.

The iShares 20+ Year Treasury Bond exchange-traded fund, ticker TLT, posted its worst week of outflows on record, with traders yanking more than $1.2 billion, according to data compiled by Bloomberg. The 10-year U.S. government bond yield soared in the span, approaching 2%.

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Meanwhile, gold futures fell to a three-month low as contracts equal to over 3 million ounces changed hands in half an hour on the Comex.

In the 30 minutes ended 10:30 a.m. in New York Monday, 33,596 contracts were traded, more than triple the 100-day average for that time of day. Futures have declined in recent weeks as growth concerns ebbed, damping haven demand for the precious metal.

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Is The Fed Monkey recession prevention system working?

A thanks to our veterans on this Veterans’ Day!