In today’s briefing:
- U.S. Equity Investors Are Playing With Fire
- The Canaries in the Bifurcated Market Coalmine
U.S. Equity Investors Are Playing With Fire
- The S&P 500 is facing the twin macro risks of a hawkish Fed and deteriorating fundamentals
- Based on the current 10-year yield of 2.8% and the current earnings outlook, the historical downside risk is between -10% and -30%.
- Arguably, the 10-year yield should be much higher in light of recent core CPI readings, which would have even greater dire consequences for equity valuation.
The Canaries in the Bifurcated Market Coalmine
- The U.S. equity market outlook is undergoing an unusual bifurcated condition.
- Intermediate-Term technical indicators remain bearish but survey-based sentiment indicates crowded short conditions, which is contrarian bullish.
- As long as our pairs trading factors remain in uptrends, we are inclined to remain cautious on the equity outlook.
Before it’s here, it’s on Smartkarma
