Investors Are Very Overweight Cash

Stocks Rally On Tuesday

This week is shaping up well as the S&P 500 increased 1.07% on Tuesday, meaning it is 3.75% off the February 8th low. I still think the recent high of 2,787 is important. The S&P 500 is now 81 points away from that mark. The earnings season looks like it may actually be a catalyst for stocks to move up. The narrative in the past few weeks has been that earnings were going to push stocks up. Usually the narrative is biased to the upside and it’s often wrong, but that one looks like it will be accurate. Some bearish investors claim the growth in earnings doesn’t count because it’s coming from the tax cuts. I disagree strongly. The growth rate is unsustainable, but the earnings are real. The time to worry about 2019 earnings growth will be later in the year as the first quarter earnings period isn’t even 10% done with. I do think 2019 will be a rough year for stocks, but that bearishness doesn’t matter if stocks are down 10% from their all-time high in 2018. That will be an important topic if stocks break a new record. At that point, I would turn bearish.

No Reason To Fear A Bear Market

Every sector was green except the financials which were down 0.07%. The consumer discretionary sector was helped by Netflix as it was up 1.87%. The big catalyst for stocks in the next few days will be the rest of FAANG’s earnings. It’s funny to see the VIX falling 7.91% to 15.25 just after there were articles claiming the VIX was the new safe haven. That was clearly ridiculous as this is likely a normal, albeit elongated correction. The European economy is weakening and the U.S. consumer is stagnant, but there’s nothing that suggests a bear market is coming. The chart below shows the recent global PMI weakness in both services and manufacturing. If that was enough to cause a bear market, we would’ve had many in the past 10 years. It’s even too early to say this is the 3rd global slowdown since 2010.