The S&P 500 has advanced steadily since breaking resistance at 3000.
Lifted by Fed liquidity injections in the repo market.
Optimism over improved global trade has spread, with the DJ Euro Stoxx 600 breaking resistance at 400.
South Korea’s KOSPI completed a double-bottom reversal to signal an up-trend.
And India’s Nifty Index broke resistance at 12,000.
Commodity prices remain low but rising Trend Index troughs on the DJ-UBS Commodity Index suggest that a bottom is forming.
Crude spiked up with rising US-Iran tensions but is expected to re-test support at 50 as supply threats fade.
Fedex recovered above primary support at 150, but the outlook for economic activity remains bearish.
Falling US wages growth warns of slowing job creation.
Declining employment growth highlights similar weakness.
Initial jobless claims, while not alarming, are now starting to rise.
Growth in weekly hours worked has slowed, with real GDP expected to follow.
While GDP growth is slowing, corporate profits (before tax) are also declining as a percentage of GDP.
Market Capitalization of equities has spiked to a ratio of 20 times Corporate Profits (before tax), an extreme only previously seen in the Dotcom bubble.
The market can remain irrational for longer than you or I can stay solvent, but this is a clear warning to investors to stay on the defensive.
We maintain our view that stocks are over-valued and will remain under-weight equities (over-weight cash) until normal earnings multiples are restored.