Sentiment May 2017
Some market fundamentals, which led these years of general rising, are changing and it is advisable to take awareness.
Let's start as always from our monthly SP500 index (chart attached).
Forecast at the beginning of the year set a target of 2500 pts to be reached at the end of 2017.
However, this has already been reached at the middle of the year, and the space for further rising is minimal, unless corrected to the 2200/2300 pts area.
Should we concern about this?
- Market thickness : only few data would be enough to understand the strength which supports the courses. Last SP500 survey indicates that only 76 shares have registered new highs in the previous 52 weeks, and most of them from the High Tech industry. In addition, among different operators in the market only the Commercials play an important role. Well, in these last weeks they no longer have supported the market with new purchases of long options.
- Fundamentals: Market and investment drivers were expectations of growth in the US following Trump's election, and in the Euro area due to the effects of the QE. The facts tell us a lot more. In the last few months in the US, ISM data, consumer confidence, and core durable goods orders have been negative. In the Euro area instead, with the exception of Germany, any positive or consolidated trend of growth has been recorded. Moreover, the effects of the various QEs have not shifted to consumption, and the spread yield chart (good inflation indicator) indicates that, apart from Italy (????), other economies travel below the threshold of 2%, enough to dampen the expectations of an aggressive FED policy about rising rates with consequent dollar weakness against the euro, as well as the decline in bond yields of medium duration (US 10YR)
- Risk on: technical and inter market analysis shows the appreciation usually reserved for "safe" investments. We are talking about gold, high bond bonds, and Yen, whose charts show the different signs of strengthening different assets.
At the moment, we have only some clues and nothing indicates a definite trend.