Clairvoyant

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Equity markets continued its relentless advance with the S&P 500 (SPY) and the Dow industrials (DIA) closing fractionally positive for the first time this year. Bringing up the rear, the NASDQ 100 and the Russell 2000 are still down about -4% YTD.

Rumors that central banks are working together to prop up equity markets are circulating more than ever. Currencies reacted inversely to expectations on Draghi s drastic measure to stimulate the Eurozone with even more negative rates. Since both Draghi and Yellen announced fresh monetary policy the dollar dropped 3% against the Euro. A lower EURO would help Euro-Zone companies in global trade.

This does not give the markets a warm and fuzzy feeling when central bankers who are allegedly the smartest guys in the room, get the opposite effect by their decisions. The upcoming wacky presidential election does not help either. Forget about using big data and AI to predict the future and presidential race, all you really need to do is watch the Simpsons. Almost 16 years ago it featured Trump as president.

Listening to the presidential debates one might conclude we are in a depression, in reality we have steady modest growth with a rich PE of 22.5. In fact, unemployment is at lowest levels in years and we are now exporting Oil for the first time since the 70’s. Granted the participation rate is low but it’s been grinding lower for 25 years. Many low paying factory jobs undesirable for US citizens have left for foreign shores.

So, looking at the bright side, money continues to flow out of mutual funds and ETF’s even as the market rallies and the exposure to US equities remains at very low levels which is supportive to the market. Long term momentum has rolled over and with modest growth and a high PE, this strong rally will most likely have limited upside from here.

The resurgence of more speculative sectors like Semis is positive. Transportation and Oil which led the decline are now on fire which has been a positive sign, although too hot to handle at the moment.

The biotech sector is under pressure along with health care in general. Negative sentiment is prevailing with the Valeant blow-up and of course price gouging for prescription drugs still wafting over the sector.  Pfizer is looking to leave the US for better tax status and that’s not good press either.