As yields continue to grab equities by the throat, refusing to relinquish what is seemingly becoming a death grip, it is becoming obvious that levels of fear among investors is reaching tradeable, if not investable levels.
There isn't any conclusion to be reached by looking at any of the myriad of traditional contrarian indicators that exist. Being that they are followed by nearly every investor out there, they typically cross signals, delivering nothing but an amplification of the noise that is so abundant.
Instead, levels of fear are being demonstrated by how subservient equities have become to yields. Further, yields are falling (everyone is buying bonds) as a result of fear related to economic growth due primarily to the uncertainty over an escalating trade war.
This type of newfound dependency of the equity markets to fixed income U.S. treasury securities is completely ignoring two facts:
- The further yields fall, the more attractive the earnings yields on the S&P looks on a relative basis
- Earnings, while being lumpy across sectors, are still in a relatively healthy period of growth. Just as Q4 2018 was an overreaction to fear of an earnings led slowdown, Q2 2019 has a high probability of being another overreaction.
After being bearish for the entire of May, Zenolytics is preparing to turn a new leaf. While it still remains early, we are certainly close. Keep the buy button dust free and shiny because the time to use it is quickly arriving.
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