While the market continues its bullish advance (why not with $120b in QE), the divergences between price and other internal indicators continue to widen. Another trip to the 50-dma would be a near 3% crash, and a decline in the 200-dma (which hasn’t happened for one of the longest spans in 40-years) would be a 10% disaster. (While I am sarcastic, the low volatility market experienced this year makes even normal annual corrections seem much worse than they really are.)
For now, the “stair-step” process continues with bounces off the 50-dma to slightly new highs before the next decline. At some point, investors will slip and fall down the stairs.
Price Targets Exceed Analysts Grasp
Analysts are rushing to peg a 5000 price tag on the S&P 500 by the end of 2022.
Even if it’s a HUGE if because analysts’ estimates are always too optimistic, earnings meet expectations valuations will remain extremely rich.
How Much Confidence Should We Have In Confidence Readings?
The graph below, courtesy of Renaissance Macro Research, presents quite the quandary.
As we discussed last week, the widely followed UMich Consumer Confidence fell sharply to levels below any seen in 2020. On the other hand, the lesser followed Langer confidence index continues upward. It isn’t easy to fully understand why they are diverging. However, Langer rose steadily in 2019 and 2020 while the UofM indicator was flat. Other than that period preceding the pandemic, the two indicators correlate well, including periods before the financial crisis and the tech crash.
Jackson Hole Appetizer
The host of the Jackson Hole symposium, Esther George of the Kansas City Fed,...