Despite lots of disastrous economic reports and plunging US Treasury yields, the S&P500 managed to jump up another 0.96% last week. Supporting this bullish move in equities, stock market volatility remained near multi-year lows. While the VIX index crept up early in the week, but Friday’s close it fell right back down to the lows of the year.
How bad were the US economic reports? Pretty bad, especially considering the fact that US economic growth over the last 9 years has been very poor already (fun fact—US economic growth from 2007-2016 averaged 1.3% per year; growth from 1930-1939, during the Great Depression, ALSO averaged 1.3% per year!). While personal spending and personal income met expectations (ie. no beat, but also no miss), almost every other report was a miss. Consumer confidence missed. Mortgage applications missed. Chicago PMI missed. Pending home sales missed. Initial jobless claims missed. PMI manufacturing missed. Construction spending missed. International trade missed. And the biggest number of the week, May payrolls, registered a disastrous miss.
But no matter, US stock markets rallied on the week.
So now (once again) US equities are extremely overstretched from a technical analysis point of view…. using daily, weekly and monthly charts. Also US equities are extremely overvalued from a fundamental point of view…..both aggregate price to sales and aggregate price to GDP are near 100 year highs.
At the same time, oil prices (and other commodity prices) have resumed their retreats. And US Treasury yields have fallen back down to levels last seen when the S&P500 was more than 10% lower than it is today.
But again, nothing seems to matter.
It’s getting to the point where not only the average person on the street is convinced, utterly convinced that there is no alternative to buying stocks ….. but lately top Wall Street strategists are doing the same. A few days ago, for example, Bank of America Merrill Lynch published report with a headline: “All News is Good News”.
In it, they stated: “clearly, equities continue to respond well to both positive and negative economic data….”
Some day, this insanity will end, but in the meantime, the easiest and surest path for US stocks is to the upside.