20 Apr A QUIET DAY
Led by technologies, equities declined. There was no major catalyst other than the generic concerns…earnings, valuations, COVID, inflation fears. Similar to the two week advance in Treasuries, an advance which is thought to be short covering and technical in nature, a similar environment might be present in equities.
According to Goldman, the median short interest in member of the S & P 500 is 1.6%, near a seventeen-year low. In the mega sized technology shares, it at the lowest ratio on record.
Most will agree valuations are at best “elevated” given that the S & P 500 is trading around 23x next year’s earnings, the highest since 2000. Compared with the 10-year Treasury, the benchmark is offering the thinnest risk premium in history according to Bloomberg data.
Speaking of yields, the S & P 500 forecasted dividend yield is 1.44%, one basis point off the lowest its ever been according to Bloomberg. Some believe this low yield will support Treasury prices.
Wow! Talk about priced to perfection.
Earnings season accelerates this week. Perhaps one the only concrete statements to make is that if companies fail to exceed expectations or issue poor guidance, volatility may rise considerably. As per Goldman’s data there is “no other side of the trade.”
What will happen today?
Last night the foreign markets were down. London was down 1.0%, Paris down 1.25% and Frankfurt down 0.70%. China was down 0.13%, Japan down 1.97% and Hang Seng up 0.10%.
The Dow should open nominally lower ahead of a deluge of earnings reports and a recent spike in virus cases. Oil is up about 1% at $64/barrel one year to the date that this key commodity plunged to -$38/barrel, on belief that demand will continue to rise. The 10-year is up 1/32 to yield 1.60%.