Current Implications for Asset Classes

Current Implications for Asset Classes

Despite the sharp decline, our indicators for stocks remain bullish based on economic growth and an accommodative Federal Reserve.

Current Conditions

• The extreme volatility and improved sentiment readings confirm that many professional investors have sold stocks this week.
• Indicators we follow closely, like the VIX and Put/Call ratios, show the market could be close to a low, with a sharp rally seemingly more likely than a further decline.
• The last 7 times the market behaved similarly, the declines did not precede a recession or a bear market, except for 1987. In that case, the economic conditions were very different than they are today. The Fed was raising rates, inflation was over 4%, and the 10-year yield rose above 10% – very different conditions. The last comparable decline was 12/24/18, marking the stock market low.

Risks we are monitoring

• Our recession indicators are ok, but this could change.
• If the yield curve inversion widens, that might show the Fed was too tight relative to the economy.
• High yield bond spreads remain tight, indicating good liquidity in the market, an important indicator.
• Economic indicators are important as well. The Chicago PMI was released today and was better than expected. On Monday, the ISM index will be released, another important indicator.

We will continue to monitor and assess the market implications. Thank you for your confidence and please call with any questions.
 

 

 

 

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Source of data and performance statistics: Bloomberg L.P. and Factset Research Systems Inc.

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