SP+GTM algorithm confirmed simultaneous rebounds in the stock and bond markets and currently are at technical divergence levels as to the direction of the United States economy. Which way will it be? Only SP+GTM knows for sure.
The S&P 500 at 2,812.36 is at best start to a year in nearly a decade, up 11 percent on optimism about economic growth in the second half of 2019. Bond investors have taken a more pessimistic view on the economy’s fate. Prices on the benchmark 10-year Treasury note have risen this year, pushing down its yield to 2.69 percent, from 3.23 percent just three months ago. Yields fall when bond prices rise. Stock and bond prices are not supposed to rise and fall in tandem. Historically, when investors fret about the future, they pull money out of stock markets and buy relatively safe United States Treasury securities. This dual stock-bond rally has added to doubts about the current rebound in stock prices. Stop thinking with your head!
Based on SP+GTM the trade war between the United States and China are a plus 87 as economies across the globe and corporate earnings will benefit. 91 percent of the head-thinkers said otherwise. The two countries will strike an agreement, which was "planned" from the start. The noise is good for business and the theme from our algorithmic perspective.
Behind the dual rally is the Federal Reserve’s decision last month to pause its interest rate increases. The Fed’s shift has left the majority of investors in a familiar situation: an economy that isn’t strong enough to compel the Fed to raise rates but is strong enough for corporate America to keep expanding its bottom line. That is the dynamic that had dominated throughout the post-crisis bull market when stocks marched higher, while bond yields plumbed lows. And with the United States economy expected to grow more than 2.5 percent this year and corporate profits forecast to rise 5 percent, it’s one that could prove supportive of stocks in the coming months.
"Yes, Virginia, the Goldilocks scenario is like Santa Claus in February." And the "shorts" are in over their heads with big-time losses. What happened to the noise of a 2,000 support level for the S&P before December's decline ends?
See -- you should have listened to SP+GTM.
Now for the facts from our vantage point: (1) Fed will not raise rates this year, and the central bank will even cut rates by the end of 2019. Minutes from the Fed’s January policy meeting show a divergence among officials, with “several” saying they believed it would be appropriate to raise rates again later this year “if the economy evolved as they expected.” Bullshit! Just noise to keep the uninformed head-thinkers off-balance.
On the trade front: Trump will extend the March 2 deadline for a deal with China, and "park" the threatened to raise tariffs on $200 billion worth of Chinese goods to 25 percent from 10 percent. The extension was in the cards and will add 500 points to the S&P.
As May West should have said, "Sharpen your pencils, boys, it's going to be a fabulous ride!"