Post-election animal spirits fade, but not gone
U.S. equity index futures red; Dow down ~1%
Russia-Ukraine tensions escalate
Euro STOXX 600 index down ~1.4%
Dollar, bitcoin, crude ~flat; gold gains ~1%
U.S. 10-Year Treasury yield falls to ~4.35%
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POST-ELECTION ANIMAL SPIRITS FADE, BUT NOT GONE
The S&P 500 index .SPX has registered 51 record closing high so far this year, which is the most since 70 in 2021.
Meanwhile, traders are also watching the consumerd iscretionary / consumer staples ratio as another means of assessing just how robust animal spirits may be.
Trading action in consumer discretionary stocks can reflect confidence, or lack thereof, in the economy since companies in this group produce or sell non-essential items. On the other hand, staples' behavior can provide clues into just how defensive market positioning may be, since companies in this group produce or sell products that consumers cannot forgo even in tough economic times.
Since Election Day, the ratio of the Invesco S&P 500 equal weight consumer discretionary ETF RSPD.K vs the Invesco S&P 500 equal weight staples ETF RSPS.K finally vaulted to fresh record highs:
Indeed, both the ratio, and the S&P 500, scored their record closing highs on November 11. Since then, however, both have dipped in tandem, but both remain well above their rising 200-day moving averages.
Looking back over the past two years or so, the ratio formed a bearish divergence into the S&P 500's early-2022 then record highs. After both the ratio, and the SPX, violated their 200-DMAs, a severe market decline played out.
The ratio diverged into the S&P 500's July 2023 high and again into the March 2024 high. There were coincident peaks in February 2023 and July of this year.
However, in these four cases, only one of the either the ratio or S&P 500 violated its 200-DMA, not both, and market weakness proved to be more contained than the 2022 collapse.
Thus, bulls will want to see the ratio and S&P 500 quickly stabilize, and get back in-gear to the upside. More protracted weakness that sees both of them fall below their 200-DMAs may suggest potential for even greater S&P 500 weakness.
(Terence Gabriel)
*****
FOR TUESDAY'S EARLIER LIVE MARKETS POSTS:
GREEN SHOOTS IN GREECE - CLICK HERE
WEAKEST QUARTER FOR LUXURY GOODS MAY BE BEHIND US - BOFA - CLICK HERE
"DON'T GIVE UP ON EUROPE," SAYS UBS - CLICK HERE
AUTOS AND BANKS DENT STOXX, RUSSIA WORRIES MOUNT - CLICK HERE
EUROPE BEFORE THE BELL: POSITIVE START IN STORE - CLICK HERE
TRADERS FOCUS ON FED AS KEY TRUMP PICKS AWAITED - CLICK HERE
SPXvsRSPDRSPSratio1192024 https://tmsnrt.rs/3CyTj3T
(Terence Gabriel is a Reuters market analyst. The views expressed are his own)
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