This is a day that is so quiet that I have time to allow a thousand titles to come to mind. For those of you who follow this blog closely you have probably noticed that now I rarely write the blog before the market opens, as was the pattern for many years. Now I tend to wait and see the morning sentiment, write something around mid-day, comments that should be relevant through the next mid-day. Part of the change is that loose money is 90 % of the story every day, so fundamental supply – demand analysis is meaningless.
So some possible titles today are:
Correlated not Causative..
The main take away, is something is changing. The most anticipated market move ever, a move that because of loose speculative money happened before the fundamentals gave any hint of whether it is real or not. What happens now. The traders and guru’s who have ridden this play believe that a parabolic up move in stocks is at hand. Of course that is premised on all kind of great things occurring in the “Great Reopening Trade”, a trade that in a sense started on April 9, 2020 when Treasury and The Fed joined hands and decided that they would do anything to push stocks higher. And they did, how can reality even come close to all the artificiality injected. Looking around to people younger than me that I know, the 35 to 55 group, they have not held back on buying during this pandemic, new houses, new cars, you name it, everyone has tried to get things bought before the reopening, when they believe prices are going to go up. Covid is probably not a big factor, until it is, and what that factor is, the markets ignored it, why would the end of it mean anything.
I will present the same basic chart ( some using daily data, some weekly data) weekly data today, that I have shown the past few days. This is the S&P price divided by the 10 year interest rate.
What does this chart signify. It does not show a causative relationship, higher interest rates do not cause higher stock prices, as well as lower interest rates don’t cause lower stock prices, it is a correlated relationship, not causative. So we are looking at a descriptive presentation, things are changing, what are those things? I would suggest that the comments above answer some of that question. The fact that interest rates have stalled suggests that the super reopening trade may be running out of gas. With the excessive multiples loaded into current stock prices, you can see what level of risk is implied.