Hello everyone,
I hope you’ve had a good week in lockdown, all things considered. I’m pleased to be writing this in a moment of relative peace which has been hard to come by this week with many things going on in business, life and markets. It’s always great to take time out and reflect on things, and share my perspectives with you all here...
In and amongst it all we have launched our brand new website, milliondollartraders.com, and updated our new Monthly Checklist Report for May (which also includes a new addition - more on that later). But there has been plenty of action in markets, which we shall make the main focus here today as we do usually. Let's begin with a few of the highlights from our latest report which Trading Club members can access right now.
First up, the Business Cycle. Our Checklist has now flipped negative, as we were anticipating these past couple of weeks. As I explained in Wednesday’s video analysis, you may argue that the Yield Curve could be marked down given that the inversion (negative signal) occurred recently, even if it is no longer inverted at present (it tends to precede peaks in the business cycle by anywhere from 6 months to 2 years). Nonetheless, the weight of evidence in the fundamentals we track here point towards the US being in recession, as Q1 GDP confirmed earlier this week.
With this setting the scene for cyclical assets like stocks, the following Checklist could not provide clearer confirmation to equity investors that they should be worried. I cannot recall ever seeing a score of -6, even around the 2007 peak (I think we ‘only’ managed -5 then!). This is as strong of a signal as you can possibly get, considering that we score sentiment (the only component that is not negative) from a contrarian perspective.
So how on earth is the S&P 500 trading where it is!? Should it not be 1000 points lower!? This has been tormenting investors all week, and is ultimately the million dollar question that we all want the answer to - is this a technical retracement that will see a downside continuation below 2200, or does only one liquidity matter to markets?
Here you can see the huge Fed stimulus in perspective, as many other Central Banks are following with around the world. Stan Druckenmillar famously said that “earnings don’t drive markets, liquidity is what drives the market.” This is open to debate (we of course believe in a broad based analysis of several measures, rather than any single factor in isolation) but nonetheless it is worthy of our attention and it cannot be denied that this is a positive factor for stocks.
Here you can see the Checklist, which tracks the key Central Banks around the world, including the US Federal Reserve. They are all aligned in their accommodative policy stance, as represented by the significant expansion in their balance sheets.
There is obviously a titanic battle between the belief in stimulus, over the drastically negative (and worsening) economic data. Time will tell how this all plays out, but rest assured that our Checklists and weekly Trading Club analysis will ensure that you are best prepared for the evolution in markets. With market drivers becoming increasingly complex in recent months it has never been more important to have a proven trading process at your disposal.
If you would like to join us for our full analysis including new insights each week, or learn from the ground up with online tuition from Lex in our MDT online course, then head to lexvandam.com and take your financial knowledge to the next level right away!
Have a safe and pleasant weekend,
