“Don’t be fooled by the the holiday-shortened trading week in the US. Next week promises to give investors plenty to watch, including the Greek bailout, minutes of the Federal Reserve’s last meeting, Bank of England governor Mark Carney’s testimony, retail earnings and Warren Buffett’s annual letter.”
“Over the last 3 weeks, US equities have rallied as fund positioning rose, the buyback bid resumed as companies exited blackout periods and US equity inflows returned over the last week. Overall US equity fund positioning getting elevated. Elevated overall positioning reflects that of long-short hedge funds and asset allocation funds.”
“Cognitive dissonance exists in the US stock market. S&P 500 is up 10% since the election despite negative EPS revisions from sell-side analysts (see Exhibit 1). Investors, S&P 500 management teams, and sell-side analysts do not agree on the most likely path forward.”
“Yesterday, NY Fed President Dudley said it was very unusual to see stocks rising when there’s so much uncertainty. True, but they’re getting a lot of help on the regulatory and tax side. But there’s no evidence in other markets that everyone has a clear vision of the path ahead.”
The problem – or at least one of the problems – seems to be that whenever some people hear “correlation”, they Marty McFly it right back to high school science class and regurgitate the old “correlation doesn’t equal causation” line and then subsequently tune out as if they’ve dropped the mic on me.