In what seems like an appropriate moment to bring the subject back to life, a follow up to my early February article titled "Financials Are Setting Up To Lead The Markets Down" seems due.
Despite the recent strength in technology and small-caps, a continuing stench continues to envelop the equity markets. Everything from the tumultuous relationship equities have developed to interest rates to the general market action, which is being defined by volatility as a result of illiquidity.
The only path of seeming consequence for investors is to pile into a simpleton group of investments that define the current socioeconomic landscape. The justification to invest in the FANG names, as the most obvious example, is based more on a reluctant acceptance that you really have very few other options as an investor. The only other options are lesser versions of FANG names that have provided more substantial returns, however, carry with them not only more risk, but the responsibility to perform due diligence in order to be able to understand your investment.
Momentum in the FANGs spills over to various technology based small cap names and voila...bulls suddenly have justification for all the other ills underpinning the economy and the markets. The theory that small-caps and technology leads bull markets is good one and a proper one, for that matter. It has been substantiated statistically over time. However, may I remind you dear reader that the equity markets are neither static or kind. And for that reason, such suggestions, at this point in the secular bull market cycle, should be greeted with a fair amount of skepticism, at a very minimum.
Back to financials:
click chart to enlarge
Since the last time we checked on financials in early February they have gone nowhere. It seems like nowhere remains a best case scenario for them moving forward. The ramifications for the broader markets remains a general malaise that will likely only be broken by downside volatility that could become exponentially larger as we enter the summer months.
