The Dow hit a record high on Monday morning as trade optimism prevails, and hope springs eternal that months of coordinated easing from central banks will finally manifest itself in the data (e.g., global manufacturing PMIs inflecting for the better).
Donald Trump is excited, that’s for sure. “Stock Market hits RECORD HIGH. Spend your money well!”, the president shouted, at nobody in particular before the cash session even got going on.
Sound financial advice from a serial bankrupter of everything from casinos to mail-order steaks businesses.
Stock Market hits RECORD HIGH. Spend your money well!
— Donald J. Trump (@realDonaldTrump) November 4, 2019
Anyway, US equities are surging in the new week, “short-term ‘contrarian’ positioning signals be-damned”, Nomura’s Charlie McElligott writes on Monday. Usually, SPX/SPY $ Delta in the 96.4 %ile (and QQQ $ Delta in the 94.6 %ile) would be short-term bearish, as extreme positioning portends a pullback even if it “resolves higher again” after a month.
But right now, it’s up, up and away.
Notably, there’s a bullish analog in play (on top of big $Gamma strikes in SPX at 3050, 3075 and 3100).
As Charlie notes, “since 1929 when SPX was already +20.6% through [the] end [of] September, historically we then see October through year-end median performance +6.0%”.
Of course, as noted first thing Monday morning, we’re already there off the October lows.
The real kicker comes when McElligott looks at years when the S&P was up 20.6% YTD (through 9/30) and then posted a positive October. Here’s a table:
“We then see the November median return of +3.0%, December +3.0%, October through December +9.4%, January through March of the following year +5.4% and the entirety of the following year +12.6%”, he recounts.
Who knows, maybe Trump is right to say you can safely spend your paper gains, confident in the notion that there’s more to come…