The rise in home prices from the trough in 2009 has added $8tn to home values, pushing the value of homes to a level surpassing the 2006 peak.
Indicators of market breadth are often useful in confirming or telegraphing important trend changes in equity markets. In simple terms, indicators of market breadth measure the level of participation of individual stocks in the general trend of the market.
Since the middle of August the S&P 500 energy sector is up 11.5% compared to just 3% for the index as a whole. Many observers have chalked this outperformance up as a reaction to a deep oversold condition or a short covering bounce, but a growing amount of evidence suggests it may be more than that.
The Federal Reserve is likely to decide next week to begin letting assets roll of its balance sheet as bonds mature, instead of reinvesting the proceeds. This means that the balance sheet will begin to shrink in size and other market participants will be forced to absorb the supply of new issuance of treasury and mortgage backed securities.
The upturn in global PMIs over the last year has been substantial and for the first time in years the world’s developed economies appear to be expanding in unison. As we can see in the table below, the color of the board has moved from red to green, indicating that nearly every major DM country is seeing improving PMIs.
We’ve been talking at length recently about the attractiveness of foreign, cyclical stocks. While foreign developed markets are attractive, emerging markets are especially attractive from a valuation perspective and are also benefiting from what we think is just the beginning of a persistently weak US dollar environment.
We’ve been arguing since the end of 2016 that markets could be in for a sustained period of USD weakness and so far in 2017 they delivered just that.
It may be an overlooked fact that the global materials sector is the best performing sector over the last three months (up 8.6%), the second best performer over the last month (up 2.7%) and the third best performer over the last week (up 1.3%).
The last week has witnessed the return of multi-directional volatility in the equity markets for the first time since just before the election in the United States last November. At this point we have little reason to suspect the 2% mini correction in the S&P 500 will turn into a major downside swoon.
Proxy metrics for financial conditions from the US dollar, to interest rates to corporate bond spreads have been loosening since June and suggest continued moderate economic growth in the second half of 2017 and a firm equity market.