The K-Shaped Economy Broadens Out Beyond the Consumer Space

Divergences are growing throughout the economy, as Tech concentration and industrial production leave the other sectors behind.

Key Takeaways

• Markets Are Ending The Year Sideways: For all the chatter over “what an exciting marketplace” as the year draws to a close, all we see is a boring sideways-moving market. Big ups in everything one day and big downs the next. Across all the asset classes, we have gone a month or more with little net change in anything from equities to bond yields to gold and commodities to Bitcoin to the dollar. Then again, when we are running a model that has a very low beta and a very high Sharpe ratio, boring is actually rather sexy. It works for us.

• Equity Analysts Are Excessively Bullish: In yet another sign of universal bullishness, I am not sure anyone realizes that we have reached a point where the share of U.S. equity analysts with either a “sell” or “underweight” recommendation on the stocks they cover is down to 0.5% (tip of the hat to Mike Wilson)! I mean, this is usually a cheery bunch and is typically under pressure from management to toe the line, but come on — this is ridiculous!

• Yen and Australian Dollar Are Firming Up: The Japanese yen continues to show a pulse (¥154.55) as market-based odds for a BoJ rate hike this month have risen to over 90% -- up from 60% a week ago. In addition to the Japanese yen, the other currency screening very well right now is the Australian dollar, where economic growth is firming, and the central bank is shifting away from its accommodative stance. We should add that for the first time in many years, we are warming to the Canadian dollar.