Exploring the Peculiarity of Lack of Reflationary Signal from this Rally
November 11, 2014If we had been on a deserted island in the south Pacific for the past month and a half with no cell service or internet access (doesn’t sound so bad!) and upon our return we knew only that that US stocks had dropped nearly 10% and then rallied back to make an all-time high, we would have guessed a few things:
- A substantial v-shaped rally in such a short period of time must have been driven by cyclical stocks
- The areas of the market that were beaten down the most during the decline (EM, small caps. Europe) would surely have outperformed
- World stocks as measured by the MSCI World Index must also be near an all-time high
- Following number three, an increasing number of individual world stocks would be at 200-day highs
- Government bonds would have massively sold off off of the equity market lows
- Inflation expectations would have recovered all of their decline
- High yield bond spreads would have confirmed the new highs in stocks
- Commodities would have rallied off of the equity market lows
- The USD would have gone down off of the equity market lows
1) Counter cyclical stocks continue to outperform cyclical stocks:
2) EMs, Europe, and to a lesser extent small caps continue to underperform the S&P500:
3) The MSCI World Index has broken its upward sloping trend line, has made a series of lower lows, and has formed a dead cross:
4) The number of world stocks at new highs continues to make lower highs:
5) Government bond yields have barely budged higher and the trend lower remains firmly intact:
6) Inflation expectations have recovered a bit, but remain near the lows:
7) High yield bond spreads narrowed off the highs, but are still divergent from stocks and are in a clear widening trend:
8) Commodities continue to struggle:
9) The USD has shot higher: