Today’s early bounce reinforces the “troops” are trying to play some catch up to the “generals.”  The troops are the average stock that has hugely underperformed the market leading mega-cap issues such as Amazon (AMZN) and Netflix (NFLX).  I continue to believe this is all part of an incredible relief rally rather than a sustainable fundamental move because our credit metrics have yet to change.  The U.S. Treasury Yield Curve and Bank Lending Data remain at levels typical in the beginning of a recession, rather than the end of one.  We continue to sit tight waiting to become more offensive when (1) the market pulls back and there is relative outperformance in the offensive sectors, and/or (2) our credit tells suggest a dramatic improvement in the economic outlook.

There are times with a significant edge in being either bullish or bearish with high conviction, but this is not one of those times based on our data, and the opposing forces of Fed vs. Economy.  Both remain historic and unclear.  What we do know is that if we were coming out of a recession, credit should be acting differently than it is.  Again, the monetary and fiscal stimulus keeps us from getting too negative, but the economic and EPS backdrop keep us from chasing the already historic run higher of a panic low.

Tactically, the upside should become more labored and the huge winners are likely to pullback, especially relative to the areas we highlighted in our post today.


Past performance is not a guarantee of future results. Index returns are unmanaged and do not reflect the deduction of any fees or expenses.

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