The Bespoke Report — 6/16/17
This content is for members onlyThe Bespoke Report – 6/9/17 – Lots of Light, Less Heat
Below is an excerpt from our weekly Bespoke Report, just sent to subscribers.
- Both sides of the Atlantic were abuzz this week with political headlines: a former FBI director took the stand in Washington to call the President a liar, while a shocking election result in the UK sent the pound sterling tumbling and threw the entire country into political flux while the ticking clock of Article 50 is running.
- For all that political heat, XIV (the inverse short-term VIX futures ETF) has outperformed SPY by almost 50% YTD (chart, right).
- The VIX has been below 16 for 145 straight closes through Thursday, the third-longest such streak on record, and hit its lowest levels since 2006 on Friday.
- An equal-weighted portfolio that should perform well in a “good policy” environment (short ten year notes, long the dollar, and long equities) has moved sideways almost all year long.
- In other words, despite a raucous period for society, the markets are tame and docile.
- That’s a scenario we’ve been mulling for quite some time; the reaction from global equity markets following Brexit was an early sign of that regime, as was the equity market’s significant rally in 2016 following the US election.
- Back in March, we highlighted the steady grind higher in the stock market during the tumultuous year of 1964, when Goldwater ran for President, the Civil Rights Act became law, Vietnam was heating up, and LBJ introduced his ’Great Society’ initiatives.
- In the background of the light from political disruption is the economy: after the entire world got onto the same page of upside surprises in Q1, American data has deteriorated.
- Investors are forced to ask: is the political light distracting from weak data here in the USA?
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Have a great weekend!
The Bespoke Report – 6/2/17 – Baby Step
Just when you think the market has run out of catalysts to push stocks to new highs, they break out and rally. With earnings season in the rearview mirror and President Trump coming back from an overseas trip, the possible positive catalysts for equities were hard to come by. In the market, though, has there ever been a rally based on a positive catalyst that everyone was expecting? Of course not. If that was the case, it would have already been priced in!
While the S&P 500 actually took out its bull market highs on an intraday basis in early May, it didn’t make a convincing breakout to new highs until this week, when the index cleared its two-plus month period of consolidation. As shown in the chart below, the stair step pattern we have been highlighting endlessly for months now remains intact, although, at this point, the most recent run still looks like a baby step compared to prior legs higher. Will it continue? Only time will tell, but in this week’s report, we provide updates to both the pros and cons for further gains down the road.
If you’d like to read our thoughts on recent performance plus the rest of this week’s Bespoke Report newsletter, take advantage of our one-month Bespoke Premium free trial offer. Sign up now at this page.
Have a great weekend!