– Market Risk Index makes a big improvement, but still in elevated territory.
– Missing ingredients for the psychology composite – Surveys. Investors and gurus have been stubborn to give up on the bull market and let their narrative die.
– Short-term psychology is as wound up like we won’t see for another decade. If history is still useful, it suggests short-term capitulation is right around the corner.
– Small-cap valuations – best in a decade.
– A road map for the bear market.
– Nowhere to hide! Global equities plunge into a bear market, & the only asset class that you will find with a positive one week return in this report was 90d T-Bills.
– Tech stocks held up better than any sector, only off 5.2%. Energy stocks shaved another 24% off their returns, while prices have been nearly cut in half ytd.
– China, where the Coronavirus originated, is leading every country in the world in equity market performance, only down 9.5%.
– T-Bill yields were already signaling it, but Fed cuts Fed Funds rate to 0-0.25% on Sunday and announce $700 billion in fresh QE.
– Market Risk Index drops under 90th percentile on improving valuations – reducing our cash recommendation to 30% from 40%.
– Psychology composite doesn’t improve as much as we’d have liked, but Buy the Dip Gauge suggests this week was most like March 2008, during the week Bear Stearns failed.
– We cut our long duration Treasury exposure by 50-75% this week on historical overbought Bond Momentum readings.
– Speculators should gear for a bear market rally, but the margin of safety to load up on equities isn’t there for long term defensive investors.
– US Treasuries and gold have proven the only two safe havens in 2020, as global asset prices continue their sharp correction.
– Energy stocks have shaved nearly 30% off their value ytd. Pure value factor dropped 5.9% last week and is down over 20% ytd.
– A falling out at OPEC – Oil prices dropping as Saudi price cuts have initiated a price war with Russia.
– US yield curve is signaling global recession as the entire curve falls below 1% yield for the first time ever on Monday.
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Market Risk Index scales from 0 to 100%. Higher readings correspond with higher risk markets. Scores below 25% are bullish. Scores between 25-75% are neutral, and scores above 75% are markets vulnerable to major drawdowns.
Model Category Readings (Percentiles)
