1. Global Financial Conditions
- A slight pullback in the market is not off the table. Nonetheless, the overall trend strength remains positive.
- U.S. Equities dropped this week (S&P 500 -0.24%, and still below all-time highs)
- S&P 500 Advance Decline has made new highs suggesting positive market breadth and participation
- The internals of the current S&P 500 rally are better than at the tops in 2000 and 2007
- U.S. and European Financial Conditions worsened this week, but remain conducive to risk taking
- Emerging Markets have underperformed Developed Markets YTD
- Japan (6.7%), U.S.A (+2.8%), and Germany (+2.2%) are leading developed markets MTD
- Italy remains under pressure and down YTD
- Fixed Income Investments are flat to down over the last 6 months
- S&P 500 P/E multiple is forecasted to contract from 15.35 to 12.62 over the next 24 months
- Consensus earnings growth for FY 2013 is forecasted at a lofty 10.1%
2. Interest Rates and Fixed Income
- With the Fed and foreign central banks both major buyers of bonds (especially Treasuries), and given the fact the Fed will buy more Treasuries than the Treasury will issue in supply in 2013, don’t expect aggressively higher interest rates at this time.
- The US 10yr yields dropped this week, slipping 6 bps, currently @ 1.93%
- Investment Grade Bonds remain range bound, trading sideways over the last few months
- High Yield Bonds rallied this week, but appear to be losing upward price momentum
- 5 Year Forward Inflation Expectations are at 2.81%, flat on the week
3. Major Currencies
- Investor sentiment for the U.S. Dollar is very optimistic. The current level of bullishness has not been seen since 1994. The U.S. Dollar Index has historically strengthened an average of 4% per year after sentiment has touched these levels.
- The Mexican Peso (+4.11%) is the strongest major currency vs. USD over the last 6 months
- The Japanese Yen (-17.25%) is the weakest major currency vs. USD over the last 6 months
- The South Korea Won is forecasted to be the strongest major currency vs. USD (+5.15%) through Q2 2013
- The Mexican Peso and British Pound are forecasted to be the weakest major currencies vs. USD (-1.51%) through Q2 2013
- The US Dollar has rallied nicely from support @ 79 but has struggled with its long-term down trend the last two weeks
- EURO @ $1.2989, down from 1.3076 last week
- MXN/USD @ 12.35, strengthening from 12.41 last week and making new 12 month lows
- Mexican Peso strength is currently exhibiting a high correlation with S&P 500 strength
4. Global Equity Markets
- The Global uptrend in equities remains intact as investor take on more risk.
- The ACWI and S&P 500 have broken out to 12 month highs, but remain below all-time highs
- The MSCI EAFE and MSCI EM are remain below recent 12 month highs
- Over the last 12 months (in USD): Turkey (+37%) and Australia (+26%) lead global markets
- Healthcare (+15.8%) leads Global Sectors YTD; Basic Materials lag all sectors (-1.00%) YTD
- Asia Pacific (+12.1%) leads global regions YTD; Eastern Europe lags all regions (+1.4%)
5. The Economy
- The Leading Economic Index rose 0.5% in February, its fifth increase in the past six months, matching economists’ expectations. Eight of its ten components made positive contributions, led by the interest rate spread and building permits. Over the past six months, the LEI has increased 2.3% and the strength among individual indicators has become more widespread. This is historically consistent with continued trend-like economic growth. Although federal spending cuts represent a headwind to growth this year, the expansion in economic activity should continue, albeit at a slow to moderate pace.
- Housing, Real Estate, and the Labor Market have been bright spots of the US Economy
- Business Cycle Indicators are improving
- Economic Data has begun to disappoint over the last 4 weeks
- Investor sentiment in Gold has bounced from historically low levels, but still remains in a bearish zone. Gold prices have returned slightly better than 20% per year after reaching the current level of extreme pessimism.
- Commodities (an equally weighted basket) remain in a medium-term downtrend
- Gold @ $1608/oz., up from $1591/oz. last week with support at $1550/oz.
- Oil @ $93.71/barrel, up from $93.50 last week
- Average Gas Prices have stopped moving higher, currently at $3.69, down from $3.77 three weeks ago
7. Investor Sentiment
- The current low levels of on the VIX have historically been negative for markets.
- The VIX Index @ 13.57, up from 11.30 last week
- Financial Stress spiked this week signaling caution
- Fund flows retreated this week as investors moved towards cash
- Bullishness moderated this week, % Bullish currently outnumber % Bearish by 5.6%
- State Street Investor Confidence has broken out to 12 month highs
Please feel free to forward any questions or suggestions.
disclosure: The opinions expressed in this Weekly Chart Book report are those of the author. The materials and commentary are strictly informational and should be used for research use only. This bulletin is not intended to provide investing or other advice or guidance with respect to the matters addressed in the bulletin. All relevant facts, including individual circumstances, need to be considered by the reader to arrive at investment conclusions that comply with matters addressed in this bulletin. Charts and information used in this report are sourced from Bloomberg.