dollar high yield S&P 500

Markets Can’t Escape Super-Scary ‘Shadow Of Negatives’

"To my mind, the facts still lean significantly bearish and suggest the phase of broad risk aversion isn’t yet done."

With (almost) everything green on the screens Tuesday morning, former trader Mark Cudmore wants you to know that he isn’t backing off of his recent call that the near-term top is in for the S&P.

Now if you’re a bull, you will of course summarily dismiss everything said below as the rantings of a stubborn bear who’s just bitter that folks bought the dip on Monday.

But if that’s you, you’d be wrong. Because Mark isn’t generally a pessimistic guy when it comes to markets and earlier this year, he described himself as a “permabull.”

So do take that into consideration as you read him explain what he’s calling “a shadow of negatives”…

Via Bloomberg

Exuberant Markets Can’t Escape Shadow of Negatives: Macro View

Risk assets have rallied sharply so far this week but there are sufficient flaws in the positive narrative to argue that the bears will likely inflict further pain on impatient bulls.

  • On Monday, the S&P 500 Index had its best day in more than three months. With U.S. stocks the flagship risk asset, that good mood has spread across markets
  • I argued a week ago that the global market outlook had turned much more negative, so the strength of the (expected) bounce has taken me by surprise
  • To my mind, the facts still lean significantly bearish and suggest the phase of broad risk aversion isn’t yet done:
  • Leverage amid low volatility is one of the primary risks. A sustained pick-up in volatility will force risk reduction. While the VIX Index has dropped from Friday’s nine-month high, its 10-day moving average is now at the highest level in more than three months and is virtually assured of continuing to climb the rest of this week — that will matter
  • Credit markets are at the core of this pain, not equities. And the bounce in debt on Monday was barely perceptible relative to the selloff of the previous week. Option-adjusted high-yield U.S. credit spreads remain near the widest in almost four months


  • The dollar and nominal yields are now bouncing, even in the wake of the inflation miss. This amounts to a global tightening of liquidity at the margin and is the worst kind of real yield advance. With leveraged dollar shorts at the most extreme in more than four years, this also causes direct losses for investors, further compelling risk reduction.


  • U.S.-China trade tensions continue to simmer
  • Major bellwether stocks of 2017 — Alphabet, Amazon and Netflix — are not fully validating the latest bounce
  • Amid summer liquidity, these factors all add up to a material negative argument
  • Never mind any escalation in the North Korea situation — that was always just the catalyst and not the reason — Turnaround Tuesday is likely to see us much lower soon

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