When the crowd leans one way, the boat is at risk of capsizing. With BofA’s Bull & Bear indicator triggering a contrarian “sell” signal and equity inflows hitting record highs, market participants are priced for a “Goldilocks” perfection that leaves zero margin of safety. While consensus bets on double-digit earnings growth and Fed cuts, a “Bear Steepener” in the yield curve suggests the bond vigilantes are revolting against a $1.6T deficit. If the US 10-year creeps higher, today’s 22x forward multiple faces a sharp reality check. I remain 65% long in quality, but patient for the correction.
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Focus on High Quality in Challenging Markets
It’s my thesis market returns over the next few years are unlikely to match what we’ve seen over the past decade. However, I’m also of the view that will create great opportunities for savvy patient investors who think long-term. This missive defines what is meant by “quality” investments – and the attributes investors should focus on. And if we are see a more challenging climate the next few years – it’s higher quality assets which will shine.
Worst Week of the Year… Uncertainty Weighs
Approx 2 months ago – it felt like markets were starting to hedge their bets. How could I tell? Whilst the market was trading near record highs (around 6100) – momentum was fading. I commented on both the weekly MACD and RSI falling – whilst prices remained high. Technicians call this “negative divergence”. Quite often it suggests prices are at greater risk of easing. Since then they’ve dropped ~6%. The week ending March 7th was the worst week for the year and the third straight week of losses… more to come? I think so…