Equity Risk Indicator is in Exuberant Territory

S&P 500 has risen based on eps growth. However, US corporate profits are flat in 2019; the rise just came from share buy backs. The S&P 500 is as well trading at the upper end of its trading range and the distance to its 200-day moving average is getting at extreme levels.

Normally, that is worrisome. At the same time, JPM’s equity risk indicator is in “exuberant territory”. I would argue that we might see a consolidation followed by higher prices and maybe a correction in H12020.

I would not sell right now equity, but consider adding some protection. Volatility is still low; therefore, options are not very expensive.

The key question for 2020: Is the secular equity bull market going to end or will it just take a break? I.e. a good buying opportunity.

With the latest new US tariffs against Brazil and Argentina, the worsen US dispute with China makes it impossible to predict what is next. However, based on this latest development and the weak US ISM data in 2020 more Fed rate cuts are in the cards. This might feed the bull….but remember this:

“You cannot predict it (i.e. the future and market cycle). But you can prepare for it.” Howard Marks

 

 

 

 

 

 

 

 

 

 

 

 

Source: https://www.linkedin.com/feed/update/urn:li:activity:6607564585903898624

Published: 03.12.2019 by Blackfort CIO Dr. Andreas Bickel

 

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