Market Trends - Stable?
Board: Macro Economics
Market trends have been stable for months.
The SPX rising momentum stalled in the past couple of weeks after making a new high. The Fear & Greed Index is neutral. The current valuations and the "mungofitch lagged MA" are still well above their rising trend lines but do not have a bubble shape. Volume is low, probably because of summer vacations.
Market sentiment indicators are within their recent bullish trend channels. Day-to-day variations are noise.
Stock P/E ratios are rich, near the top of many previous peaks (except the 2000 bubble). Margin credit has been near record highs through 2013 so far.
Treasury yields are climbing within their recent trend channel. The bottom was in May 2013 and yields have climbed (Treasury prices have trended down) since then. Climbing bond yields shift the equilibrium, increasing the attractiveness of bonds vs. stocks. But the stock market has not yet been significantly impacted.
Mortgage rates, which climbed alongside long-term bond yields, have likewise remained higher than in the early spring. Housing prices are climbing, building permits are climbing and the supply of housing is under 4 months. A bipartisan effort to reform the mortgage GSEs is still a developing story and too early to affect the housing market.
The gold price remains in its falling trend.
The USD is stable within the usual channel. The AUD continues to fall. Other currencies are stable.
Commodity prices are stable within their channels. However, corn (which Michael Pollan says is part of 70% of the U.S. food supply) suddenly dropped in price.
The ECRI leading index continues to rise in its trend. The ISM Manufacturing: PMI Composite Index climbed, showing manufacturing growth comfortably within its channel. Manufacturers' new orders are in a slowly growing trend.
Real Disposable Personal Income: Per capita remains in its stagnant channel.
Financial stress is falling. M3, MZM and M2 continue their rising trends. The Multiplier and Velocity continue their falling trends, keeping inflation in check.
Euro zone stock markets are recovering nicely. The Euro zone debt crisis is under control at this time.
Emerging market stock indexes are weaker than the Euro zone.
The only market-moving news is more gentle suggestions from the Fed that the crack cocaine of easy money may gradually recede starting a month from now. Very gradually. Very gently.
All markets are now strongly correlated. The stable trends that we have seen may suddenly change because valuations are high. (See mungofitch's posts on Mechanical Investing.) The risk-on trade may suddenly switch to risk-off if leveraged speculators get margin calls.
However, the market is still in a stable bull trend on many levels. The trend reversal in bonds happened a few months ago and has established a new channel of higher real yields for long-term debt.
As of now, all trends are stable.
The METAR for the rest of the week depends upon how seriously the Fed reinforces the expectation of easy money. Possibly a summer rainshower, but probably not a serious thunderstorm at this time.