A Few Weeks Away From The Longest Bull Market Since WWII

Stock Market Rallies On Facebook’s Turnaround

The S&P 500 was up 0.35% on Monday, putting it at the highest close since late January, which was its record high. The Russell 2000 was up 0.63% and the Nasdaq was up 0.61% as it posted its first 5-day winning streak since May. Facebook stock was up 4.45% as investors are beginning to ignore the weak quarter just like they got over the Cambridge Analytica story earlier this year. Its stock is now up 8.55% from its recent low on July 30th. The VIX fell 3.18% to 11.37 as the summer action is rivaling 2017 in terms of the lack of volatility.

This melt-up in stocks has taken the CNN Fear and Greed index to 72 out of 100. That signals greed. As you can see from the chart below, the 14 day RSI is 63.12, which is above neutral, but doesn’t signal the market is overbought yet (it needs to reach 70). The 14 day RSI is nowhere near the January peak. The CNN Fear and Greed index is a few points away from the January peak and is nowhere near the 2017 peak.

Longest Bull Wave Since WWII

Investors are riding the wave of great earnings reports and improving estimates which aren’t being hampered by fears of a trade war or fears of an economic slowdown. Weakening ISM and Markit services reports aren’t enough to worry investors. It’s easy to ignore them when forward 4 quarter estimates are up 0.6% during this earnings season. They usually fall 2%-3%. As you can see from the chart below, if the S&P 500 makes a new high, it will be the longest bull market since WWII in a few weeks. It’s still quite far away from achieving the total gains see in the 1990s bull market.

Jamie Dimon Claims The 10 Year Yield Could Reach 5%

Even though the stock market rallied, the bond market didn’t move much. The 10-year yield fell 0.56 of a basis point and the 2-year yield increased 0.61 of a basis point. The difference between the two yields is now 29.39 basis points. The 10-year yield needs to increase above 3% to avoid an inversion soon. Jamie Dimon, the CEO of JP Morgan, stated he thinks the 10-year yield should be at 4% now and could go to 5%. It’s easy for him to say this because his bank would benefit from rising yields and a steepening curve. The argument for raising rates is that the economy will continue to grow. I don’t like this argument because growth was already strong in Q2. You’re disconnected from reality if you think the same fundamentals will somehow catalyze a change in bond yields. I also think economic growth will slow in the second half which could push the 10-year yield lower.