3. S&P 500 Real Returns: CPI-Adjusted S&P500 on track for its worst performance since 1974 (and if you wanted a macro analog, the 70’s have some similarities… e.g. surging , geopolitical shocks, surging rates).
4. Rare Returns: As highlighted in chart 2, both stocks and bonds have had a rough and tough time this year. It was always going to be a hard ask for bonds to be a diversifier to stocks when both were extremely expensive—all was needed was an inflation shock.
5. Bad Breadth Update: An update to that 50dma breadth chart from : starting to look a little more oversold this week… but I would probably still just call it strong bearish momentum as the index has also taken out a pretty key level.
9. History Rhymes: Without even delving into the specifics of this chart the thing that is crystal clear is how many parallels there are NOW versus BOTH 2000 (tech boom/bust) AND 1970’s (inflation/geopolitical shocks).
BONUS CHART >> got to include a goody for the goodies who subscribed.
Investor Sentiment vs Economic Sentiment: Another big development this week was the further drop in investor sentiment (e.g. the AAII Survey saw the 5th most bearish reading on record).
But interestingly enough, my combined monthly average sentiment readings still stand in stark contrast to the combined measure of economic sentiment.
Basically, the economic surveys are saying folk are mildly optimistic, while the investor surveys are saying folk are wildly pessimistic.
I suspect this gap will close sooner or later, and likely mostly from the top side as I am seeing more and more leading indicators pointing to a downturn, and if you think about it, the Fed needs to either stand by and let inflation get anchored at high levels or step up and get inflation under control (and likely cause a recession—as a natural and logical part of the process).
As I noted elsewhere, it’s all cycles. And to that end we don’t need to necessarily go and get all pessimistic, just realistic about the reality of cycles and clear-eyed on the stage of the macro/market cycle that we are in. And act accordingly.