Watching, Waiting

It’s been a while since I updated my views on markets, which invites humility. It usually takes a few weeks for me to get a feel for what’s really going on. I return to my analysis at a point when risk assets are on the back foot, the dollar is rallying, and bond yields are falling, though in all these cases, the moves are so far undramatic. Granted, a quick-fire 7% decline in Spoos since the end of August will have driven some Robinhood punters against the wall, but that’s hardly a surprise. Similarly, the dollar is not blowing the doors off more so than it has caught a stretched bearish position off guard. That, after all, is what currency markets do. Meanwhile in bonds; zzz. In preview; I think risk assets sell off further, the dollar has further upside, and as far as bond yields go, I think they will do more or less nothing. This is not a hill that I am willing to die on, though, 
One of the problems with trying to read the charts at the moment, is that base effects from the collapse during the initial phases of the Covid-19 shock are now coming into view. In other words, it’s very easy to convince yourself of the idea that the rally is running out of steam, simply by looking at trailing returns. 
The first chart on the next page shows that the six month stock-to-bond ratio on the S&P 500 has now made a full rebound from the collapse in March, forming a peak similar to after the rebound from the swoon in 2018, and after the initial snap-back following the selloff in early 2016. The data are inconclusive, but in any case un-troubling for investors.

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