Sentiment remains strong after a quick decline and almost immediate recovery by the end of the week. Historically, market returns after such a period while being this close to the highs of the year is incredibly strong. Additionally, as of mid-day Friday, 98 large cap stocks were making new 52-week highs, and all 11 sectors were being represented. Further indication of a strong equity market, despite narratives otherwise.
The 2s10s ratio is looming near where it hasn’t been since the crashes of 2001 and 2008. Macroeconomic data is generally very early, meaning a lot must also go wrong for it to have predictive power with regards to economic downturns. Just like when yields inverted two years ago, and we have yet to have anything resembling a recession in that time. It also leaves more room for the Fed to intervene and normalize the relationship - Not all drops in the ratio signal an economic slowdown that is meaningful, especially when the economy is coming out of a period of extreme growth and historically high inflation.
Homebuilders hitting new all-time highs is also something we don’t typically see during a period of economic distress. Energy positions holding up well despite the sharp drop in oil over the last few months is also quite telling. The bond market rallying can be interpreted as a sign of difficult times ahead for the economy and the stock market, but that doesn’t mean it has to be. Consumer sentiment being where it is while equities continue to rally across sectors seems far more important now.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. The content is developed from sources believed to be providing accurate information.