Daily Brief - Bullish bottom-up data for stocks

During any sharp retracement in a prolonged bull market, we are all bound to ask “Is this it? Is it the end?”. When this happens, it is good to keep things in perspective:

To be fair, it’s easy to be swayed into thinking the bull has run its course, if one just goes by the headlines:

Private equity pays “dot.com” premium to take companies private

The shadow of stagflation is back

Real-estate armageddon is on the horizon in China

NFTs exist

And so on…

On top of this, even the hardcore economic data seems to be joining the chorus. The US 2s10s curve is doing what it does when a bear market is imminent: it is rising.

Educational parentheses: The chart above shows the spread between the yield of the US 10y and 2y bond. Once known as “the world’s best economist” the US 2s10s curve has always been a good indicator of the state of the economy. But whether this is still the case during the age of QE, is an open question.

However not all data is bleak. In particular the bottom-up picture appears more constructive.

Let’s look for example at the chart below, showing the TOGGLE US Leading Indicator. The Indicator is an aggregated view of all insights produced on the top 5,000 stocks in the US.

Recently, the indicator turned upwards, mostly thanks to value calls of stocks hitting valuation thresholds. So whether you are trading on the long-term or short-term, there’s data showing that the market might pause falling for a while.

Should we get a rebound, then get ready for a discussion on whether it will be a dead cat’s bounce!