Equities
MSCI All Countries World Index is almost flat at -0.1% mtd with very few equity markets having registered gains so for this year.
US equities have rallied to new record highs while and at an interesting spot – Dow’s broadening (megaphone-ish) consolidation pattern, SPX is back again testing the trendline running that runs along the March-October lows and September pivot and breakdown level, and NDX is flying up into premium fib extensions. US equities haven’t been in sync with the move in rates, and now that OPEX is out of the way, it is likely there could be a pullback or consolidation to realign with yields, which should hold up given the flow of strong data; it probably would have if not for the rally in semiconductors.
Looking at the options market, GEX remains very positive …
however the trend is coming off slightly, with DIX trending lower so far this month, that suggests some dark pool selling.
Put option premiums have retreated to last week’s OPEX levels, but the upward trend remains intact. I expect this momentum to continue in the coming weeks, supported by significant data releases and central bank meetings on the horizon.
The VIX edged up slightly last week by half a volatility point but remains very low. Meanwhile, implied correlation has not increased significantly, and the Put/Call ratio has returned to its lows. I would like to see both indicators rise this week to provide stronger support for bearish trades
Earnings expectations continues to recede but remains very optimistic…
The bar has been lowered, but the downward trend in earnings is unlikely to reverse as the fiscal stimulus fades and revenue inflation diminishes, while underlying wage and cost pressures persist. If Q3 is any indication – with subdued expectations and unimpressive earnings guidance – equities may see limited upside from Q4 earnings results.
Earnings Will Beat Expectations Only Because the Bar Is Low — Fourth-quarter consensus estimate dropped 7% over three months, MS strategist says prior beats came with muted price reaction (BBG).
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