April 28, 2021
Good morning,
For an event filled week, the market has been weirdly quiet thus far. It is exhibiting the same sideways action as last week (possible corrective behavior) but without the stomach churning intraday volatility. Maybe the market is just waiting for the start to what should be an eventful 24hrs – the meat of the week. There is the Fed announcement following their 2-day meeting, more bellwether corporate earnings releases (AAPL’s the biggie), and a Joe Biden speech proposing a massive transfer of wealth.
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- Economic surprises continue to come in on the upside, as they have for many months. It’s good for equity market prices when economists continue to underestimate the boom in the economy – very bullish. However one does not have to look far to find increasingly overvalued sentiment indicators suggesting the much of the good news the economists have underestimated is already priced in, or at least quickly getting priced into the market.
- Time compression is a commonly accepted characteristic of this whole bear-to-bull cycle beginning with the largest quickest bear market last February, followed by the largest quickest rebounding bull market for the past 13 months. And following that thread, several early cycle themes (growth cyclicals mostly) have pulled back and are near inflection points. This suggests that late cycle themes (defensive sectors) may be about to take the leadership baton.
The last two bullet points are two independent vantage points of the current market. The chart below is a third, and neatly ties the three together. The NDR S&P 500 Cycle Composite for 2021 is derived independently and is a combination of the one-year, four-year, and 10-year cycles. It paints a strong first half, weak second half picture. The Cycle Composite peaks in early August, suggesting that early cycle themes could persist for a few more months, but that transition (early to late) seems underway.
