The market has continued to chop up and the short term correlations are diverging from their medium and longer term correlations indication market indecision here (and for bears the end of the corrective bounce).
Across asset classes we looking for direction here and volatility looks set to rise significantly from here in the coming weeks. Given recent price ranges options strategies are open at present with attractive pricing again.
I’m traveling so ill keep my comments short for now and bring you the reports.
Firstly, the swiss team:
And here Fitzpatrick at Citi
And here GS:
Note.. “S&P has only shown evidence of corrective price action”. Its a fair comment but seven years into this bull market and given the charts of all the other instruments and the macro performances its certainly an uncertain call. Their portfolio strat team released this today to clients.
“Until we see sustained signals of growth recovery, we do not feel comfortable taking equity risk, particularly as valuations are near peak levels,” said Christian Mueller-Glissmann of Goldman Portfolio Strategy Research.
“We continue to see valuations as expensive, particularly in Europe and the US and ex financials. However, not only are valuations high, but growth prospects look poor. Earnings have been consistently revised down across regions, with recent positive earnings surprises coming primarily because of a low bar. Until we see consistent signs of better earnings growth and higher inflation expectations, we believe equities will remain on a ‘fat and flat’ trajectory,” added the analyst.
Discussing commodities, the analyst said, “We upgrade commodities to Neutral over 3 months, as we expect supply disruptions to drive higher spot oil prices and less negative roll yields in the near term. But we expect this to delay fundamental oil adjustments to the later part of 2017 and so any near-term back wardation will likely be temporary, in our view. Until the oil forward curve enters into sustained back wardation, as a result of fundamental adjustments, we refrain from being outright bullish as negative roll yield will likely continue to weigh on index investor returns. Consequently, we remain Neutral over 12 months.”
Mueller-Glissmann added, “We expect the WTI oil spot price to be at $51/bl in 4Q2016, $50/bl in 2Q2017 and $60/bl in 4Q2017. We continue to expect industrial metals price weakness, owing to a combination of excess supply and weak demand, and have the view that the support from China will be temporary.” GS
I will release a V2 with more reports later today when i get back to base.
We appear very close but we need more volatility to really confirm this. Some evidence of this on the short term but this needs to increase rather than subside.
All the best
Rich