In Case You Missed It: My Charts for the Week

By Mark Masterson on June 16, 2023

It has been said “a picture is worth a thousand words.” With that in mind, below below are a few of the most important or interesting charts from the past week…..

Charts from this past week:

Interesting to see where investors expect inflation to go from here….

BOFA: NET 87% OF INVESTORS EXPECT LOWER GLOBAL CPI IN NEXT 12 MONTHS.

Ask yourself….when have you seen 87% of investors right about anything? Perhaps inflation will remain more sticky than expectations.

Interesting chart from David Rosenberg on CPI……

The point from Rosenberg is that each time CPI falls like this – you see a vertical gray bar = recession.

David Rosenberg 6 13 23

Speaking of expectations…..

Looks like a lot of hope for a soft landing is getting priced in.

What if we get more than a soft landing and actually see a recession?

Bank of America 6 12 23

Today I am going to show you a composite of sentiment readings…….

They all but tell me that much of this bounce is priced in.

Remember the magazine cover index?
It is known for signaling that a move is all but priced in.

I’ll show you tomorrow how good it is – but for now – here you go…..

This was the cover of Barron’s from Sunday.

Barrons 6 11 23

I don’t follow Macrocharts all that closely – but have seen them post their composite sentiment and momentum charts over the past few years. They tend to be pretty solid at turning points.

Below is from earlier this week – and suggests the S&P 500 may be in for some headwinds soon….

Macrocharts 6 12 23

Stragegas reminded me last Friday that bear markets don’t bottom before the recession starts…..

Of course, that presumes we will see a recession here. We may not of course, but if we do……

Strategas 6 9 23

Another chart showing the same thing……

Stocks have never bottomed before the Fed stopped hiking…..notice in the shaded areas where the Fed paused in the past……the white is the stock market

We may get a pause today from the Fed…..

Bloomberg.com 6 11 23

Why has this market been in rally mode?

One interesting point is that the rally started right when the SVB bank failed……

Strategas 6 9 23

Why?

Because when that happened you see liquidity being pumped into the system.

Below on the left is the Fed Balance sheet jumping via the emergency loans.

To the right, you see the Treasury adding liquidity as it drained its general account during the debt ceiling pause when it could not borrow money via new debt.

Both of these pumped liquidity into the economy over the past few months.

Both are not going to be repeated.

Strategas 6 9 23

Now – take a look at sentiment…….

First – this is the most overbought the S&P 500 has been in a while…..

The S&P has strung together 6 straight up days now, while it is widely overbought……chart below shows what happened next.

Bespoke 6 14 23

Sentiment via the Smart money/Dumb money indicators shows Smart money confidence has significantly declined in the current rally

It’s now at levels last seen in April 2021

This tends to signal a turn is coming…..

Sentimenttrader.com 6 13 23

Below is the chart showing the retail/dumb money sentiment in red at extreme optimism, with the blue smart money at extreme pessimis…….

Sentimenttrader.com 6 14 23

Call options are showing that investors are very bullish here and don’t’ feel the need for any protection or risk management……

Again, notice where the red line is versus the past few market tops….

Longview Economics 6 12 23

Below showing the CNN Fear and Greed index with how investors are positioned…..

The chart of the S&P 500 marks the relative peaks of both the CNN Fear & Greed Index in blue, and the S&P 500 in red….

During this bear market, extreme greed and elevated exposure has acted as the ‘canary in the coal mine,’— this combination has preceded all meaningful declines.

Lance Roberts 6 11 23

I saw earlier that Goldman has raised its price targets for the S&P….

Again – following sentiment.

Great chart below showing the last few times Goldman did this, and what happened to markets……

chart h/t

@zerohedge

Sven Henrich / Northmantrader.com 6 12 23

A few more charts building on yesterday’s Morning Roundup showing that today’s market is just a tad overbought……

Risk-on behavior is widely present in the market. Current levels have often marked local tops since the 2022 bear market

@GameofTrades/ Sentimenttrader.com 6 15 23

As you can see, investors have not trimmed their equity allocation much. Still near the highs of the 2000 tech bubble, and the highs of 2021….

Lance Roberts 6 15 23

This entire rally has been driven by multiple expansion.

Great chart below shows that P/E has grown by 30% as earnings have not changed.

Since S&P 500’ s October low, forward P/E of 50 largest stocks (blue) is up by 30% … there hasn’t been any gain in forward EPS (orange) over same timeframe

[Past performance is no guarantee of future results]

Liz Ann Sonders 6 16 23

About the Fed and liquidity…..

There is little doubt that it is what is driving equity markets.

The below chart showing the assets on the central bank balance sheets (globally) in blue, and the S&P 500 in red.

As central banks have pumped in liquidity, stocks have followed.

When they turned it down last year – stocks followed.

When the blue line bottomed in October (when the Bank of Japan started adding liquidity) – stocks bottomed.

Interesting that today the blue line is moving sideways while stocks are rising as FOMO catches hold……

Yardeni 6 16 23

Let’s take another look at sentiment……

Bullish sentiment highest since November 2021, systematic funds long:

AAII bullish sentiment increased to 0.6pp to 45.2% in week-ended 14-Jun, the highest since 11-Nov-2021.
Optimism above historical average of 37.5% for second straight week.
Bearish sentiment fell 1.6pp to 22.7%, the lowest since 1-Jul-2021.
Bull-bear spread pushed up 2.2pp to 22.5%, the highest since 11-Nov-2021, following a 28pp jump in the prior week.

Now – take a look at how overbought the S&P 500 is today…..

Top arrows show the RSI levels are pinned at overbought. This is where previous rallies have ended.