Equity Momentum Still Going Strong as the Market Broadens Out

Equal-weighted S&P 500 is catching up to its cap-weighted counterpart

Highlights

• Equal-weighted S&P 500 is catching up to its cap-weighted counterpart

• Election outcome for Congress will matter most for markets

• “Wealth effect” emboldens consumers despite falling incomes

• Weak data out of China point to an economy lacking any pulse

While We Were Sleeping

It’s all quiet on the Eastern and Western fronts. U.S. futures are pointing to a slightly lower open, but there is hardly a doubt that the dip-buyers will step in before long (the S&P 500 closed Friday a fraction below the top of its recent range and within striking distance of setting fresh all-time highs — but the Nasdaq has much more work to do after Nvidia’s -7.7% drubbing last week). Sentiment is simply off the charts, along with momentum and valuations, highlighted on the front page of today’s WSJ (Investors’ Attitude On Stocks Gets Ultra Bullish).

Not just “bullish,” but “ultra bullish” — who can blame the investing masses when the number of folks with $1 million or more in their 401(k) plans soared +31% over the past year to 497,000? Kamala Harris will soon look after that… it may be the “Opportunity Economy” (what a slogan!) when it comes to macro but is “Robin Hood” when it comes to markets. No wonder the personal savings rate has broken below 3% (prior to COVID-19, this last happened 16 years ago).

But like everything else we used to look at in terms of traditional metrics (including the yield curve and the LEI for the economy), sentiment no longer seems to be acting as a classic contrary indicator. It may be true that S&P 500 EPS is set to expand +13% on a YoY basis, but the market pricing has doubled that earnings trend (leaving the P/E multiple now approaching a lofty 22x) — if this were simply an “earnings driven” rally, the S&P 500 would be sitting near 5,000, not 5,648.

European markets are up fractionally in the early going (+0.1%), mirroring yesterday’s lackluster session (quietly trading right near record highs, mind you). Asia again was highly mixed — Thailand (+1.0%), Singapore (+0.6%), Hong Kong (-0.2%), China’s Shanghai Composite (-0.3%), Taiwan (-0.6%), and Korea (-0.6%). Both India and Japan’s Nikkei 225 were flat. Bond markets also are little changed after yesterday’s yield uptick across the pond. The DXY dollar index is also unchanged at 101.7.