Chart #5 Likewise, US HY credit spreads are anchored by solid macroeconomic cycle dynamics… in other words, “expensive” can stay expensive for the time being.
Chart #6 US cyclical stocks are closely keeping pace with the very strong ISM manufacturing PMI but the relative performance ratio looks very stretched, likewise absolute and relative valuations.
This is a key area to keep on top of as the new bull market in America (and globally) has been driven by solid outperformance by the cyclical stock sectors.
Chart #7 An open question for 2018: will the second great moderation continue? Or will global equity volatility reach a turning point?
Chart #8 One issue (along side the themes of a maturing business cycle and a turning of the tides in global monetary policy) is a rising incidence of overvaluation across markets (and assets). It’s not at previous extremes yet, and valuation is not by itself a reason for markets to fall, but it is an important fact to incorporate and reflects increasingly optimistic expectations on the growth outlook.
Chart #9 Global death-cross watch: a nice & novel chart which tracks the proportion of markets which have a “death cross” (i.e. the 50-day moving average passing below the 200 day) across 70 countries. This is probably the most comprehensive breadth view of global equities and a key early warning chart (i.e. this indicator usually turns up leading into a correction – like it is now).
Chart #10 Last but certainly not least is China. A number of the big tailwinds (property, exports, stimulus) that helped China avoid a recession in 2015/16 are starting to turn. The fiscal/monetary policy stimulus indicators in this chart helped us pick the upturn in China before most others caught on, and I think this will be a key one to monitor when thinking about the outlook for China in 2018 and beyond.
These charts were featured in the 2017 End of Year Special Edition – click through for a one-off free download of the full report.
Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.