Looking Pretty Calm Up Here You Guys
“Even though the S&P 500 has closed at an all-time high three times in the last week, investors are still waiting for breadth (i.e. more than just
Carl Icahn Apple shares moving the market)…the current stretch of 61 trading days without a new high is the fourth longest drought of new highs in breadth for the entire bull market and the longest in nearly three years (December 2013). At 61 days, though, the current drought of new highs in breadth has a ways to go before getting anywhere near the length of the three prior streaks.” Meanwhile, “little conviction may actually be a good thing for stocks going forward…According to AAII, periods of unusually high neutral sentiment are typically followed by outsized returns in the equity market over the next six and 12 months…From 1987 until near the end of 2014, there were 71 instances of unusually high neutral sentiment. Following such periods, the S&P 500 rose 86% of the time and averaged a 7.1% gain.” Meanwhile, David Rosenberg says the current inflation and growth numbers are virtually perfect for stock investors: “In periods where real GDP growth is running between 2% and 3% at the same time that core inflation is between 1% and 2%, the average annual advance in the S&P 500 is 14.4%…Of course, the first-quarter GDP rate was atrocious, and the second quarter is looking weak as well, putting into doubt whether or not the U.S. economy can [produce] even 2% growth for the entire year But don’t fret, according to Mr. Rosenberg’s table, the average S&P 500 advance when GDP falls to the 1% to 2% range slips only to about 13.7%.”
Under The Surface
“There’s a whiff of inflation in the air, thanks to Friday morning’s release of April’s Consumer Price Index (CPI). The core CPI rose 0.3% in April, surprising economists and sending bond yields higher Friday morning…Core CPI is now up 2.6% annualized over the past three months…Is it strong enough to convince the Fed it can safely raise interest rates despite other weak recent economic reports? Probably not, but it does provide some data in that direction. However, the report also shows a 0% gain in real wages, which doesn’t bolster a case for inflation pressure. Also, the year-over-year headline number posted a 0.2% decline.” Meanwhile, “the debt millennials have incurred is a paradox for policymakers: A better educated workforce leads to a more powerful economy, but the rising costs of post-secondary education and inevitable interest rate hikes have created a looming debt trap for borrowers and a potential risk for the taxpayer.” Meanwhile, next Friday we’ll find out if the Atlanta Fed’s GDPNow forecast is worth its salt.
Also, Zero Hedge got to use their three favorite words in this headline.