Financial Markets Update: Less Bullishness On The Global Economy But Ever More Bullishness on Multinational Profits

The action in financial markets indicates a drop in expectations about the global economy, but no drop in confidence that growth is here to stay; investors believe multinational firms will exploit technologies to leverage moderate global GDP growth into disproportionately strong profits for the next two years. The volatility risk premium points to a higher market over the next few days (though volume may be light since the VRP could easily reverse and catch investors offside), while my technical reading of key stocks in the S&P 500 is bullish. There is one negative factor across global asset classes. Copper and Oil charts are pointing to declining global GDP expectations. But taken together, the market looks set to overcome these concerns and rise moderately over the next few days.

US equities have not been volatile as I expected, and have not risen strongly as I predicted on Monday morning. The trend however is unbroken and the consolidation in the S&P 500 points to bullish action ahead. Volatility indices similarly support a rising market. The VVIX is giving bullish signals after having blipped into bearish territory one day a few weeks back, and the SKEW continues to show excessive hedging by bullish investors. Yesterday was a volatile day for short-term treasuries, but the yield curve remains low and in the current context that is bullish. One more bullish factor that bears close watching is the action in Colgate Palmolive (CL) vs. Proctor & Gamble (PG): should the divergence continue or CL begin to rebound it would confirm the belief that while the US economy is moderating from its re-opening pace, confidence in persistent growth is firmly in place.

My current market positions include longs in Activision (ATVI), Blackrock (BLK), Facebook (FB), MKS Instruments (MKSI), Titan Machinery (TITN), and nearly hedged position that is net long in the SPX (UPRO and SPXU).