The markets continue to suck investors right back in as I thought/feared would happen. Since the market bottom on August 5th, the S&P 500 is up more than 7% and the Nasdaq 100 has gained more than 9%. U.S. equities aren’t all the way back to their mid-July highs yet when the whole “great rotation” kicked off, but it has recouped all losses since the bad jobs report and BoJ hike happened. The VIX is back around 15. Credit spreads have come back down to earth. Life is good again, right? On the margins, there’s a case to be made for this. Momentum is clearly on the side of riskier assets at the moment. Tech, growth and high beta equities are outperforming their counterparts. Junk bonds are recovering as spreads are back to shrinking.
Some of the same issues remain though from the pre-VIX spike regime. Small-caps are lagging sharply again, which tends to happen in a more mature growth market, not one indicating expansion. Moreover, though, is the fact that several risk-off assets are still maintaining strength. Gold keeps pushing to new all-time highs as investors anticipate the start of the Fed’s rate cutting cycle in September. Long-term Treasury yields continue to trend lower, as they’ve been doing since late April. Lumber prices, which traditionally tend to rise in risk-on environments, instead have been stagnant. This is happening because, well, the housing market sucks! That was confirmed again this past week as housing starts and permits hit 4-year lows.
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