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The Only Chart That Matters in the Stock Market: Analysis and Sentiment Results

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Are rising U.S. budget deficit and war spending concerning to the markets?

In recent times, the Biden administration and the U.S. Congress have allocated a significant amount of funds for assistance in Ukraine, with $76.8 billion already directed towards this cause. Furthermore, there are plans for an additional $100 billion for Israel and Ukraine. While the humanitarian and security aspects of these expenditures may be debatable, the financial standpoint is clear – the markets do not like it. As a result, the ten-year yield continues to test a run to 5%. Although 5%+ yields on the 10-year are not necessarily abnormal, sustaining these levels requires continuous nominal growth to avoid potential problems.

What is the current issue with the amount of debt outstanding in the system?

The main concern at the moment is the substantial amount of debt in the system. There are two potential scenarios that could unfold: natural pension demand may step in to lock up ~5% long-term yields to match their long-dated liabilities and re-balancing into year-end, or unnatural intervention will be required from central banks like the BoJ, Fed, and ECB. The ongoing situation with debt outstanding poses a significant challenge that needs to be managed carefully to ensure stability in the financial markets.

What are the latest sentiment and positioning trends in the market?

According to Bank of America’s monthly β€œFund Manager Survey,” the following key points have emerged:

  1. China’s growth outlook is starting to rebound, reminiscent of a similar trend in late October and early November of the previous year. The correlation between the sentiment shift and a strong dollar, followed by a surge in BABA’s performance, is worth noting. It will be interesting to observe if a similar pattern develops this year.
  2. Manager sentiment is currently at low levels, similar to those during the 2008 Global Financial Crisis and the COVID-19 pandemic. This indicates a potential buying opportunity in the market.
  3. Managers are not positioned for upside potential, which suggests they may need to chase assets into year-end to catch up.
  4. Shorting China equities is the second most crowded trade. When this trade unwinds, a significant rally is anticipated, much like what happened last year.
  5. Contrarian trades include going long in emerging markets, REITs, and staples, which aligns with the survey’s sentiment.

What are some notable market indicators and short-term views?

Several indicators provide insight into market sentiment and short-term outlook:

  • The 10-day moving average put/call ratio is currently at or near extreme fear levels, indicating potential market volatility.
  • According to the AAII Sentiment Survey, bullish sentiment has decreased while bearish sentiment remains relatively stable, indicating neutral sentiment among retail investors.
  • The CNN β€œFear and Greed” index has slightly ticked up, but investors continue to exhibit fear in the market.
  • The NAAIM (National Association of Active Investment Managers Index) has shown increased equity exposure. As the tide continues to turn, the β€œend of year chase” will likely be in full force.

Market Analysis & Insight courtesy of Charles Payne from a recent segment on Fox Business and Ade Nurul Safrina on CNBC’s β€œClosing Bell” Indonesia. For additional details, please refer to the accompanying images and show notes.

In summary, navigate the financial markets wisely!

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