The Credit Market & the Stock Market are in agreement……and being competing claims in the capital structure — that seems like an unlikely set of words. But the reality is both equity and credit investors have bid their respective asset valuations rare heights.The chart below shows both Credit Spreads + Stockmarket Valuations are more than 1 Standard Deviation expensive.If you eyeball the chart it becomes pretty obvious pretty quickly what that means.You don’t see many readings at that level, and whenever you do it’s either late in the cycle or just before something bad happens.Being a contrarian indicator, when valuations reach extremes it tells you everyone is thinking the same. That means there are not many more minds left to join that consensus and add to buying flows, but in contras
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Chart of the Week - Equity vs Credit
Chart of the Week - Equity vs Credit
GoldNuggets — Gold Return Rankings
Asset Class Performance Rankings 2024Heading into year-end, Gold $Gold - main 2502(GCmain)$ and the $.SPX(.SPX)$ are neck and neck for top spot.There’s still 11 trading days left (as of the time of writing), and anything could happen, but certainly for now 2024 has so far been a very good year for gold and a relatively lackluster year for most other assets. (source)China — Gold vs US Treasury HoldingsThis chart from OMFIF’s 2025-26 Perspectives pack shows China’s steady move to rebalance out of treasuries and into gold. The same trend has been echoed across BRICS+ with a steady rise in gold reserves vs steady decline in US treasury holdings. The key drivers of this have been geopolitics (e.g. sanction
GoldNuggets — Gold Return Rankings
Seeing further signs of bullish euphoria
Learnings and conclusions from this week’s charts: $.SPX(.SPX)$ $SPDR S&P 500 ETF Trust(SPY)$ $.IXIC(.IXIC)$ $Invesco QQQ(QQQ)$ $NASDAQ 100(NDX)$ $.DJI(.DJI)$ $GLOBAL X DOW 30® COVERED CALL ETF(DJIA)$ Seeing further signs of bullish euphoria.Stocks are trading to the non-recession-rate-cut script.The current type of bull market is statistically close to maturity.Household debt-to-asset ratios have massively deleveraged.The realized equity risk premium looks stretched (late-cycle).Overall, it’
Seeing further signs of bullish euphoria
Booming earnings have helped tech stocks break numerous records
Weekly Macro Themes Report - 13 December 20241. Stocks vs Bonds: Bearish stocks vs bonds given valuations, technicals, macro. Also mindful of the favorable setup for commodities vs stocks (commodities likely win in resurgence, vs bonds recession).2. Credit Spreads: Remain cautious on credit spreads given expensive valuations, wider complacency on risk pricing, and mixed macro signals.3. Tech Stocks: Booming earnings have helped tech stocks break numerous records, and sees them trading at a significant premium vs history, vs non-tech stocks, and vs global TMT stocks.4. Global vs US Equities: The new extreme relative value gap in global vs US stocks is compelling, but we need to see relative earnings and/or the US dollar turn to see price sustainably turn.5. US Dollar (+The US Premium): Rema
Prospective equity starkly different story for EM & DM vs US
In case you were curious, I thought I would also include the same prospective equity risk premium indicator for developed markets and emerging markets (using their own government bond expected returns in place of treasuries).As you can see, it is a starkly different story for EM & DM vs US.The rest of the world is basically sitting there with a decent positive expected equity risk premium, while the US is sitting there deep in the negatives. This reflects higher expected returns for global ex-US equities (vs small negative for US), which in large part is driven by valuations.I covered the detail behind this in a previous edition: “Chart of the Week - What to Expect“ — and n.b. for reference, the Capital Market Assumptions dataset is a key feature in our monthly Market Cycle Guidebook (
Prospective equity starkly different story for EM & DM vs US
Chart of the Week - The Prospective ERP
The “equity risk premium” is the compensation investors receive *over and above the risk free rate* for taking on equity risk.Over the long-run the performance gap between US stocks vs treasuries has tracked around 5%. Stocks have a well-established long-term track record of beating bonds.And with an annualized performance gap of 12% over the past decade, investors have earned a pretty good premium for taking on equity risk in recent years.But it’s not always positive, and there have been times when this spread goes to zero or even negative (e.g. the trailing 10-year annualized return spread in March 2009 was -10% following the financial crisis shock to stocks and flight to bonds).As investors we need to think not just about chasing the best return —but also be mindful about risk & opp
Chart of the Week - The Prospective ERP
GoldNuggets — China, Banks & Bonds
China is back in the market, Central bank buying into 2025, Gold vs Bond market echoes, and Work required to buy gold...China is BackThe People’s Bank of China is back in the gold market: "the decision to increase gold holdings, particularly following Trump's recent election victory, reflects the PBOC's proactive approach to safeguarding economic stability amid evolving global conditions," It also comes as China’s main economic policy working group held a key meeting where they flagged a more aggressive easing stance heading into 2025 (changing the Monetary Policy stance to “Moderately Loose“ — the last time they used this term to describe policy settings was in 2008, so it does mark a significant change). $Gold - main 2502(GCmain)$ The Next S
GoldNuggets — China, Banks & Bonds
The major macro dilemma for investors at this stage is the tails
The monthly Market Cycle Guidebook is a key resource for investors — providing insight into the stage of the business cycle, monetary policy trends, leading indicators, earnings momentum, valuations across multiple different assets and markets, long-term return expectations, and tactical asset allocation views.Key Findings from the Latest Monthly pack:Global monetary policy settings are increasingly shifting from headwind to tailwind as inflation falls and economic cycle data remain soft.Among the asset classes most at risk given valuations and the stage of the cycle are US tech stocks, US dollar, and corporate credit.Areas which see superior upside risk/reward meanwhile include government bonds, commodities, emerging markets, and certain sectors on a tactical basis such as defensives, s
The major macro dilemma for investors at this stage is the tails
US stockmarket valuations reflect supreme confidence
Learnings and conclusions from this week’s charts: $.SPX(.SPX)$ $SPDR S&P 500 ETF Trust(SPY)$ $Invesco QQQ(QQQ)$ $NASDAQ 100(NDX)$ $.DJI(.DJI)$ $Gold - main 2502(GCmain)$ Seeing more and more signs of stretched sentiment.The Gold vs Stocks ratio may be nearing a turning point.Commodities vs Bonds hold key clues on the macro outlook.US stocks have exponentially dominated vs European stocks.US stockmarket valuations reflect supreme confidence.Overall, it seems like a case of another week, another set of charts showing more and more s
US stockmarket valuations reflect supreme confidence
Bonus Chart - Absolute Valuations
In this case looking at absolute valuations rather than relative valuations, and the combined absolute value score for all three flavorsThree interesting things standout to me: 1. US Large Growth is in extreme expensive territory, the last time it reached this level was during the late-stages of the dot com bubble, and more recently at the peak of the pandemic stimulus frenzy. Risk managers take note! 2. Global ex-US Small Value (GSV) is playing catch-up — this is positive because you can get bullish or bearish rotations (and glad vs sad relative performance). So far this is looking bullish... but to explain: A. Bullish vs Bearish Rotation: bullish rotation is where one plays catch up to the other thing, and helps drive the index higher. Bearish rotation is when the previous leader falls a
Bonus Chart - Absolute Valuations
Chart of the Week - Relative Value Trinity
Thanks to a 17-year Bear Market, an intriguing set of valuation extremes have opened up …and may well be presenting a major harbinger for global investors in the coming years.The chart below shows our relative value indicators for small caps vs large caps, value vs growth, and global vs US stocks (presented as a z-score).All 3 have reached extreme cheap levels, and collectively are at the lowest point since the dot-com bubble. This should be ringing alarm bells due to the parallels to the peak of the dot com bubble — but also providing cause to pause and think about what the next big multi-year investment themes might be. $.SPX(.SPX)$ $SPDR S&P 500 ETF Trust(SPY)$
Chart of the Week - Relative Value Trinity
Weekly S&P500 ChartStorm - Numerous indicators point to bullish euphoria
Learnings and conclusions from this week’s charts: $.SPX(.SPX)$ $SPDR S&P 500 ETF Trust(SPY)$ $E-mini S&P 500 - main 2412(ESmain)$ The S&P500 closed up +5.73% in November (+26.47% YTD).Numerous indicators point to bullish euphoria.The stock/bond ratio looks stretched, divergent.US stocks account for ~75% of Developed Markets.About 1/3 of the stocks in the S&P500 get replaced each decade.Overall, the market continues to exhibit strong bullish momentum in an uptrend. This has enchanted investors with a sense of euphoria, and as highlighted in this week’s charts, one of the most contrarian moves right now would be switch stocks for bonds… and mayb
Weekly S&P500 ChartStorm - Numerous indicators point to bullish euphoria
Weekly Macro Themes Report - US stock trend and momentum are still bearish
This week I covered the following topics/ideas: $.SPX(.SPX)$ $SPDR S&P 500 ETF Trust(SPY)$ $.IXIC(.IXIC)$ $NASDAQ 100(NDX)$ $Invesco QQQ(QQQ)$ $.DJI(.DJI)$ $GLOBAL X DOW 30® COVERED CALL ETF(DJIA)$ 1. GSV vs ULG: Strategically bullish global/small/value vs US/large/growth on compelling relative valuations, but tactically cautious as trend and momentum are still bearish; no turn yet.2. EM Equities: Remain constructive on EM equities despite the drop in sentiment and pullback in prices; longer-
Weekly S&P500 - Tech & Bitcoin show speculative scrambling
Learnings and conclusions from this week’s charts: $.SPX(.SPX)$ $SPDR S&P 500 ETF Trust(SPY)$ $E-mini S&P 500 - main 2412(ESmain)$ $Invesco QQQ(QQQ)$ $NASDAQ 100(NDX)$ 1. Tech & Bitcoin show speculative scrambling.2. Trading in single-stock leveraged ETFs is surging.3. Mutual funds are underweight Big Tech.4. Stock market supply has been contracting.5. Real earnings yields are real low.Overall, as documented last week, sentiment and the speculative mood is becoming progressively more bullish, euphoric and frenzied. It’s a dangerous time to lean against the market in
Weekly S&P500 - Tech & Bitcoin show speculative scrambling
Weekly Macro Themes - Remain bullish small caps
This week I covered the following topics/ideas:1. Gold 60/40: In comparing gold $Gold - main 2412(GCmain)$ vs bonds for the 40% of the 60/40 portfolio, the key takeaways are to diversify diversifiers and to diversify discerningly (be valuation-aware, don’t set and forget the 40).2. US Housing: Valuation indicators remain near record highs for US residential property, this can resolve fast and painful, but may be more likely to resolve over a long-time through relative price stagnation.3. Small Caps: Remain bullish small caps given attractive absolute and relative valuations, mixed-to-negative sentiment and flows, and potential sector skew benefits.4. UK Equities: Both UK equities and the GBPUSD offer some attractiveness in (relative) value vs
Cycles & Valuations in Commodities
The chart below is from a post I wrote earlier this year outlining how cycles + valuation signals work in commodities (and how you can design unique valuation indicators like the one I highlighted above to help navigate those cycles).Just like the stockmarket and economy moves in cycles, commodity markets also move in cycles —driven by clear underlying fundamental, macro, and financial cycles.When commodity markets are expensive, producers respond by increasing supply and consumers feel the pinch and often demand softens… prices therefore subsequently decline as supply rises + demand falls.But then it usually goes too far in the opposite direction, prices become too cheap, producers cut back, consumption rebounds, and then prices start moving higher again.A well-designed indicator will con
Cycles & Valuations in Commodities
Chart of the Week - Commodities Cheap
Remember the “Commodity Supercycle”?Back in 2021-22 a lot of folk were talking up the Supercycle narrative, and for some very good reasons e.g. prolonged underinvestment in supply by commodity producers, structural and thematic drivers of demand such as the energy transition, but also short-term factors like the stimulus-fueled surge in growth, and let’s face it a key driver of supercycle-narratives was just plain fizzy bullish sentiment.Since then we’ve been through a cyclical bear market — not the type of cycle many were expecting, and certainly not very super.But now is not the time to give up on commodities or even to deride the idea of a supercycle, because there are a lot of very good fundamental reasons for commodity prices to go up over the medium/long-term, and a couple of very in
Chart of the Week - Commodities Cheap
S&P500 is taking a breather after briefly hitting 6000
Learnings and conclusions from this week’s charts:1. $.SPX(.SPX)$ is taking a breather after briefly hitting 6000.2. Numerous investor surveys have hit record (bullish)highs.3. Market measures of sentiment show extreme confidence/complacency.4. A clear vibe-shift is underway in economic confidence.5. High growth once is easy, consistently high growth is hard.Overall, the market is taking an inevitable breather after an extended run, and I think one way to reconcile it is if nothing else; just a period of digestion and correction of extreme confidence, optimism, and bullish euphoria (as the data and charts below show). It does mean there are a lot of minds that could change given the right prompt, but in the immediate term the predominant market m
S&P500 is taking a breather after briefly hitting 6000
Chinese stocks may have more upside than consensus thinks
Trumphoria is gripping markets — everyone expects a repeat of the 2016 bull run when Trump first got elected.All the obvious beneficiaries of a Trump presidency have been rallying, while some of the obvious losers have been punished.Conventional wisdom says one “obvious loser“ (i.e. China A-Shares) will suffer under the second coming of Trump, with the prospect of more tariffs, trade-wars, and tough negotiations hanging overhead.The logic is that trade war 2.0 risk and a generally hawkish geopolitical tone across the incoming Trump administration will present further challenges for an already ailing Chinese economy.And there’s probably some truth in that — it’s going to be: not-boring.As things stand right now, China is in the middle of its worst property downturn on record, local governme
Chinese stocks may have more upside than consensus thinks
Large caps are expensive and Small caps are actually cheaper
One thing I’ve been looking at is the differences/similarities in 2016 vs now — as I commented earlier, it seems a lot of folk are focused on the 2016 election of Trump and the subsequent rally in stocks and concluding something like “this is how stocks usually trade under Trump” (i.e. that one time).But aside from the small sample size, there’s a few key issues; specifically, the background context and starting point in terms of valuation and sentiment is entirely different this time. Case in point below. $.SPX(.SPX)$ $SPDR S&P 500 ETF Trust(SPY)$ $NASDAQ 100(NDX)$ $Invesco QQQ(QQQ)$
Large caps are expensive and Small caps are actually cheaper
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