The Markets Are Doing a Whole Lot of Nothing
Market review for the week of May 7th-May 12th
Happy Mother’s Day to all mothers ❤️❤️! Hope you had a wonderful day. We didn’t get a piece out during the week, so here is a quick review of the markets after last weeks developments.
Markets Review - Last Week
We have passed the majority of earnings with markets just a tad bit higher than 1 month ago. Thus far we have not seen the dramatic earnings recession that Mike Wilson at Morgan Stanley and other analysts have warned. This week had a better than expected CPI print and lower consumer confidence numbers. Neither moved markets in any meaningful way.
Here is the weekly chart for the S&P 500.
The Nasdaq is up just slightly over last week, looking week to week.
We are seeing a calmer market.
The market has become desensitized to the Fed and macro numbers over the last few weeks. Cross asset correlations have started heading down into more normal territory. Cross asset correlations - how much assets move together - normal rise in periods of stress and panic. A decline in cross asset correlations means markets are calming down.
This is great for diversification strategies like the 60/40 portfolio. That’s right, it is prudent again to purchase bonds to protect your portfolio in a downturn.
That is not to say everyone is jumping back into the stock markets. A better view is that everyone seems happy where they are. That includes investors in money market funds which are at an all time high of AUM gathering.
Plenty of investors are happy getting money market yields and avoiding potential stock market future volatility.
Where to next?
The main focus now is on the debt ceiling. The cost of US debt as expressed in insurance purchased from CDS on US Treasury is at highs not seen in recent memory.
Bond investors are paying more for insurance against the US government. Stock investors seem to care little as the VIX is at a multi-year low. The VIX measures the likelihood of future stock market volatility or sudden moves.
Investors are also closely watching the US dollar index. A rising dollar is not good for the markets. This would dent earnings of large US companies and cause funding issues for emerging markets as many of their debts are dollar-denominated.
If you have any questions, leave a comment. Thanks for reading Embrace the Chaos! Sharing perspective that makes sense.
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- Vikas Kalra, CFA
Hi Vikas, excellent report. At Quant Insight we notice in the last few days the Gold-Silver Ratio, a part of our Risk Aversion factor bucket, has risen sharply. This is the primary driver that symbolizes US Sov. risk. Negative for equities. Filter for most in the Qi Portal. CS