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  • Hello and welcome back to the Note.

  • It's tempting to suggest that we can ignore the year so far

  • as virtually all the most dramatic transit that we saw in the first six weeks or so of the year, have now completed reversing.

  • Even the S&P 500 itself was briefly up for the year at one point today.

  • It's tempting, but it's unbalanced, I still think we should resist that temptation.

  • We start by taking a look at the dollar,

  • this is the trade-weighted index against a basket of other significant currencies.

  • A very sharp move down in the last two days following the very dovish statement we got from the Federal Reserve.

  • Put in perspective you can see we're still very much stronger for the dollar than we were two years ago

  • it's still not necessarily clear that the trend is been emphatically reversed

  • but a distinct, clear relief of the pressure,

  • a weak dollar makes life a lot easier for a lot of people, particularly in the emerging markets,

  • reduces some of what's known as the tail risk, the risk of a significant crisis.

  • Now if we take a look at WTI Crude,

  • you can see again, if we look at it as a long term perspective,

  • perhaps you shouldn't get too carried away by what's happened so far this year.

  • But we are up for the year, we're back above 40 dollars per barrel,

  • there is still a long way to go before this very dramatic, downward trend could be emphatically reversed.

  • But plainly there are reasons why we have seen the recovery of the last few weeks.

  • Now if I'd shown you a surprise data for how U.S. economic data have come in,

  • that would've shown you a V shape,

  • so would volatility, so would inflation breakevens.

  • there's a persistent pattern that we have seen a V shape as people suffered a very significant recessional deflationary scare

  • in as to about the second week of February and then steadily recovered from it.

  • Does that mean that all is well?

  • No, there are still some significant signs that all is not totally as it should be.

  • Let's take a look at the S&P 500 and compare it to the S&P 500 Dividend Aristocrat Index.

  • This is an index of companies which are particularly reliable at paying out their dividends

  • and generally something that begins to appeal to you when you're nervous,

  • when you want to be sure that you actually get your money,

  • It's a "show me the money" index.

  • And as you can see, it has radically outperformed over the last few months.

  • When people are that concerned to see money upfront, it's generally a sign that they still lack confidence.

  • Bear in mind, it's still obvious that the S&P remains well below its peak from last May.

  • And I don't think we can discount all that just happened over the last twelve weeks.

  • Plainly, there was a very significant scare, that scare has been reversed.

  • We are still unfortunately left with rather a worrying situation where there is still a lack of confidence.

Hello and welcome back to the Note.

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Markets' reversal of fortune | Authers' Note

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    Kristi Yang posted on 2016/03/18
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