Monday, 23 December 2019

S&P 500 at record high but reflation trade “doomed”

The S&P 500 ended last week at a record high of 3,221.22 amid encouraging US economic data and optimism over an impending US-China trade agreement.

However, with the S&P 500 now up 28.55 percent year-to-date, maybe it's time to start worrying about euphoria in US stocks.

“The bulls have broken out and the bears have gone into hibernation,” wrote strategists at RBC Capital Markets. “If the market keeps grinding higher in the very near-term, these are likely to be important sign posts that will eventually help mark the top.”

“Typically, there is euphoria before pullbacks,” noted Aron Pataki, a portfolio manager at Newton Investment Management.

Indeed, Zero Hedge says that the reflation trade is doomed.

Citing analysis by Masanari Takada, cross-asset quantitative strategist at Nomura Securities, Zero Hedge said that “without a Chinese pillar of support, without validation from CTAs, and with the Fed's 'NOT QE' set to end in April, the reflation trade is nothing more than another Fed-created headfake, and has at most another 4 months before financial gravity, and a record $255 trillion in global debt, unleash the deflation trade”.

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