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4 Red Flags In The Stock Market That Don’t Exist
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I was planning not to write today, but I just can help it. I’m too fired up after reading a few articles on some websites. The Fed is paring its massive balance sheet; interest rates are rising, inflation is running rampant, comparisons to 1987, the end of days are once again upon. Gimme a break!
Seriously, I hate it when website post these chart to make the losses look much more severe then they are by blowing up the scale, or better yet, not even giving a scale.
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The Fed
First, the balance sheet lets see just how much the paring is. You can see in the chart below, right? You just have zoom your browser to about 200 percent first. 
How about the 5-year view?
Wait, what about now?
Oh, My! The Fed has pared an astonishing $100 billion of the massive $4.5 trillion balance sheet, since 2015! Gimme a break! Just stop with the Fed trimming the balance sheet crap! It is bull, plain and simple. Even since September of 2017, it is only $40 to $60 billion. It isn’t like the floodgates have opened. My bet is the floodgates never open, and the Fed will never sell bonds, just will just let the bonds running off at maturity.
I’m not getting in the federal budget deficit, and the impacts. All I can say, the US Federal Debt is nearing $21 trillion. I’m not sure another $1 trillion is gonna matter much at this point, especially when the German 10-year Bunds trades at 53 bps, and Italian bonds trade at 1.87 percent!. Italian Bonds trade at 1.87 percent! Think about that, with a Debt to GDP ratio of 131 percent! Ya think we might have some buyer of our 10-year Treasuries?
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Interest Rates
So which is it? Are rates rising or is the yield curve flattening, or is it both? It is back and forth every week about the rates. They’re rising; no the curve is flattening. But what about Libor, massive inflation, growth is deteriorating.
Below is the trimmed mean PCE, it is likely the best measure of inflation in my opinion, as takes out the top and bottom outliers. How does that inflation look to you? Out of control? Nope, not even at 2 percent yet.
Ten-year rates have actually been trending lower since late February.
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Economy
As for the economy, it seems to be pretty in good shape. Manufacturing ISM was over 60 in February the highest in the past year. Non-Manufacturing ISM was 59.5 down from 59.9 in January. But February was still the third highest reading over past 12 months.
The Atlanta Fed’s GDPNow reading has fallen to 1.8 percent growth for the first quarter, nothing great, but nothing to get worried about either.
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1987?
Are we headed to 1987, I have no clue, anything can happen at any given moment. But here is a chart of 1987, by the way, I was only 9! The only thing I remember is my Dad coming home from work that night, and turning on PBS to watch a stock market show at 6 PM, I can’t even remember the name.
The S&P 500 was up by over 38 percent through the first eight months of the year! Even after the crash, the market still managed to finish the year higher by 2 percent.
The S&P 500 had been up by nearly 138 percent from 1982 through August of 1987.
Over the present 5 years, from March 2013 until now, the S&P 500 is up at its highest point by 83 percent, and only 23 percent over the past 52-weeks.
So I’d say the same level of exuberance is yet to hit our stock market.
As the futures just start trading Sunday night, nothing earth-shattering is going on in the S&P 500 futures or the currency markets.
Let’s see what Monday brings!
Good Luck
Night!
-Mike
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