Nearly all men can stand adversity, but if you want to test a man’s character, play golf with him

As equity markets mark time, indicators are suggesting that investment sentiment is starting to turn bullish, despite the current uncertainties. Technology shares remain a popular part of an investment portfolio as speculative bets in Nasdaq futures have once again turned positive. Noncommercial positions on the Vix indicate that traders are short volatility and demand for call options relative to put insurance options remains elevated. Short interest is low relative to the S&P 500 market capitalisation. The CNN fear and greed index is back in greed territory, but as yet not close to the extreme greed earlier this year.

There has been a modest correction in US equities but overall a relative lack of volatility currently in either equity or bond markets. As we highlighted volatility measures in the equity market remain elevated but well below compared to what investors are currently paying to hedge their bond portfolios.

Bond investors are rightly nervous as the Financial Times reports that Donald Trump’s handling of the US economy is not a plus in voters’ eyes. More Americans apparently believe the president’s policies are hurting than helping the recovery. Only a third of Americans feel they are better off today than when Trump took office. If voters vote with their pockets then this would add to the belief that Biden will win. If voters are cautious about Trump’s policies they may find that voting in a leader whose policy is to spend, borrow and tax may be just as burdensome. Bond investors will run scared of lending to any government whose policy is to tax those who create wealth in an effort to pay back the borrowed money.

One amazing statistic we read today that US consumers are sitting on some 1.8 trillion dollars in excess savings account balances, as a result of the lockdowns. Consumer confidence has taken a hit but the latest consumer confidence data reports an improvement. Should the US consumer become more confident, enough to spend that 1.8 trillion, it could give quite a boost to the US economy? It may also give the Fed something of an inflation headache at some point in the future. At present they are not that bothered.