What Financial Markets Are Telling Us: Low Visibility Means Slow Progress

Profits and low interest rates almost guarantee a bull market but the slow progress in S&P 500 of late is a signal of low visibility on the health of the global economy. While India and the US exhibit relatively high growth rates other nations are facing lockdowns or decelerating economies, leaving investors wary of putting too much money to work in the markets. The volatility risk premium points to a higher market over the next few days, but my technical reading of key stocks in the S&P 500 is neutral. Yesterday's cross-asset action brought only one positive factor for US stocks: the action in the € & EM currencies indicates the $US is weakening. With volume still low and eyes on the employment report Friday, expect the S&P 500 to be range-bound today.

Derivatives markets are signaling slow progress as well: the volatility of volatility (VVIX) is signaling higher markets while the SKEW index is signaling a major correction. Volume in equities is too light to indicate major new highs on the horizon. Bonds are trading to the upside but the TYVIX is signaling stable rates, which itself signifies weak growth and thus weak profits for all but the major innovators and disruptors. The currency markets are in limbo as the $US recent strength is being tested, and commodities are straggling higher in a manner that suggests fragility rather than robust growth. Consequently expect the markets to be range-bound until either a correction occurs or a series of positive developments regarding COVID variants hits the headlines.

My current market positions are in Pfizer (PFE) and Starbucks (SBUX), and a short position in the SPX (UPRO and SPXU).