In today’s briefing:
- Why You Should Fade the Breadth Thrust
- The Fire & Ice Challenge to Risk Assets
- Can the Yield Curve Predict the Future of the Economy? An Updated Analysis Using Granger Causality
- TPW Advisory April Monthly: Look Behind The Curtain
Why You Should Fade the Breadth Thrust
- The stock market was higher a year later in every instance of out-of-sample Zweig Breadth Thrust buy signals since 1986, though it did pause and pull back on two occasions.
- We think that the latest signal will resolve in a pullback.
- The market structure of the S&P 500 indicates it’s undergoing a bottoming process. Our base case calls for breadth to recover in a choppy manner for the next few months.
The Fire & Ice Challenge to Risk Assets
- The stock market and other risk assets are facing a fire and ice challenge.
- Fire in the form of still overly hot inflation readings and ice in the form of a deteriorating economy.
- We believe current conditions are only bearish warnings and not outright bearish signals and offer several tripwires to watch.
Can the Yield Curve Predict the Future of the Economy? An Updated Analysis Using Granger Causality
- Does the yield curve predict the US economy? Debate continues if the difference between short and long-term rates reliably indicates future GDP growth or if it’s just a coincidence.
- If the yield curve spread accurately forecasted changes in GDP growth, it could help predict booms and recessions, offering a more informed basis for economic policy and decision-making.
- An updated Granger causality analysis provides new evidence to settle the debate between correlation and causation.
TPW Advisory April Monthly: Look Behind The Curtain
- We go back to one of our favorite movies: The Wizard of Oz, to discuss what happens when investors pull back the curtain on the Fear, Uncertainty & Doubt (FUD) hype machine.
- We believe that what lies behind the curtain is not a big, bad, brown Kodiak bear but rather a series of important policy changes that are in process of unfolding across the Tri Polar World.
- These include: Central Bank acceptance of higher inflation targets; the return of US Industrial Policy after a 70 year absence; Europe’s push for integration across energy, tech, defense and climate; Japan’s shift off YCC and China’s adoption of a domestic demand led growth strategy.
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