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  • Christian Armbruester

Je pense, donc je suis

We may not understand why the S&P500 index is at 4900. It has to do with some index formula and the resulting weighting for each constituent results in a seemingly arbitrary number. What we do know however, is that it was at 4100 two months ago. That type of move in such a short space of time is a historical rarity. What we need to understand is what changed to cause a rise in prices equivalent to several years’ worth of expected returns?

If anything, things seem worse than they did before. Many businesses are struggling to find financing, bankruptcies are at levels not seen since 2008, credit card delinquencies continue to make record highs and the housing markets are more than dead. The only real difference is the narrative that central banks are going to start cutting rates aggressively, even though they continue to fiercely deny it.

Sentiment went from extreme fear to extreme greed, and everyone piled into the markets. Except, commodities, and base metals in particular are still signalling recession. That’s good, because we need things to get worse for the bond markets, but it does not bode well for demand, and we need a soft-landing for the stock market. Someone is clearly wrong, question is, when are we going to be at 5700?


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