The macro data from the past month continues to mostly point to positive growth. On balance, the evidence suggests the imminent onset of a recession is unlikely.
All of the US equity indices continue to make new all-time highs. SPX and DJIA have risen 8 months in a row. The current uptrend is extended, and may be getting ready to take a short break, but further gains are likely during the first several months of 2018. December is typically the strongest month of the year for equities. But as bullish as December tends to be, an intra-month drawdown of 2% has been common, even in recent years. By some measures, investor sentiment is more bullish now than at any other time in more than a year. That could mute returns over the next month or so.
US indices closed at new all time highs on Tuesday. The gain was so strong that SPX closed 25% above its upper Bollinger Band. This is rare. There have been only 5 similar instances since 2009.
On its own, a flattening yield curve is not an imminent threat to US equities. Under similar circumstances over the past 40 years, the S&P has continued to rise and a recession has been a year or more in the future. Investors should expect the yield curve to flatten further in the months ahead.
Macro economic data is good. It seems likely that rates will be higher in a year and that suggests treasury yields will also be higher than they are now. But the path between here and higher yields is unlikely to be as straight-forward as is currently believed.
Global equities have risen 18% so far in 2017 and yet, until this month, fund managers have held significant amounts of cash and been, at best, only modestly bullish on equities. All of this has suggested lingering risk aversion. That has now changed.
For the third quarter (3Q17), S&P earnings rose 12% yoy, sales grew 6% and profit margins expanded to new all-time highs. Bearish pundits continue to repeat several misconceptions...
US equities continue to make new all-time highs (ATHs) and the outlook into year-end is favorable. This week's interim fall of nearly 1% followed by a strong rise into the close demonstrates the market's continued resiliency. It might also indicate waning upward momentum. There remain a number of reasons to suspect that more weakness is ahead, although this is likely to be only temporary.
The major US indices closed at new all-time highs (ATH) again this week, led by the surging technology-heavy Nasdaq. SPX is now higher 7 months in a row; that level of momentum has not marked a bull market high. Several short-term studies - using trend, sentiment, volatility and breadth - suggest a lower close than today may be ahead in the next few weeks. Any weakness is likely to be temporary.
The macro data from the past month continues to mostly point to positive growth. Unemployment claims are at a new 40 year low. New home sales are at a new 10 year high. On balance, the evidence suggests the imminent onset of a recession is unlikely.