A couple of observations

The MSCI World index has risen for 7 out of the last 8 days, as the US equity indexes reclaim highs made earlier in the year. European indexes appear to be dragged along more reluctantly and remain some way away from those previous highs. Jerome Powell’s Jackson Hole speech largely reiterated comments made in the Fed minutes and had little impact on bond or equity markets. The announcement of a bilateral agreement between Mexico and America seemed to be greeted with a positive impact on equity sentiment.

All again looks rosy in the garden when one puts aside the possibility that the US-China trade concerns may yet escalate, Italian bond yields don’t spook bond investors again, and rising US interest rates don’t upset emerging markets.

Stocks are no different to life when things are purring along something or someone directs a well-placed blow and vice versa just when all around seems hopeless a ray of sunshine appears. One should always bear that in mind. Also, what is buried in the back pages today, may well be tomorrows lead story and today’s lead story is tomorrows chip paper. In the days you were allowed to sell chips in newspaper.

A couple of minor observations. US equity markets may be hitting new highs, however, the Vix index is not currently hitting new lows. In the past month, the Vix reached a low of 10.9, the S&P 500 since that point has seen some volatility but is approximately 2% higher. The Vix index is trading closer to 12. This rather reflects the year so far. The S&P 500 is up approximately 8% year to date the Vix index a similar amount. If one considers the Vix to be a fear index, the fear factor has increased as the index has climbed. Normally it works in reverse.

Despite the US economy continuing to truck along at a healthy pace, the Citi Economic Surprise Index illustrates economic data is coming in below analyst expectations. In itself, that is not necessarily a portent of impending doom, however continuing to fall can eventually work its way into downgrades to economic growth expectations. The index has fallen through most of the year. This may go part way to explain a little why the Vix has risen modestly as the equity market hits new highs. 

Posted on August 28, 2018 .