“Beware The S&P Air Pocket”

Regular readers may recall Citi’s News Implied Sentiment Indicator (NISI) which “aims to capture investor sentiment via data on the number of Bloomberg news stories containing the keyword ‘Bullish’ and the keyword ‘Bearish.'”

I know, I know. These “bullish” news-based sentiment indicators tend to have a discernible bullsh*tt-ed-ness feel to them, but as it turns out, NISI has a pretty “simple” relationship with the S&P.

An updated look at Citi’s indicator versus stocks seems to show a glaring disconnect. If March turns into a “policy shock” event as opposed to a “benign reflation” event, stocks could move sharply lower. Find the (brief) color and visual below.

Via Citi

Last night, President Donald Trump said the US is witnessing a “renewal of the American spirit”, as he delivered his first speech to Congress.

Our own sentiment indication, NISI, remains stubbornly low/ close to neutral however, as markets continue to wait for more informative details on Trump’s proposed policies. Indeed, as Figure 1 shows, the SPX may have in fact raced ahead too far and on this simple relationship could fall back to ~2200 near term (~-7%).

We are increasingly wary of recent price action in the SPX. Other “Trump trades” have in fact been turning over (buyback stock outperformance, cyclical vs. defensives, etc.) whilst rates markets are now pricing in for a more hawkish Fed.

Less Trump, more Fed? Beware the air pocket in SPX.