The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Moody’s.
Moody’s downgraded the US credit rating and S&P 500 futures dropped significantly, as did Treasuries. The S&P opened down about 60 points and went to work climbing out of the hole right away. Treasury yields climbed only modestly early on. The market took note of the Moody’s downgrade but didn’t worry about it. The dip-buyers said thank you and lifted offers. Treasury buyers did the same as yields ended up *falling* by the afternoon. The S&P went positive at around 1 PM and stayed near Friday’s close for the bulk of the afternoon. Capital flow showed no signs of concern, printing a very light 85%.
Moody’s didn’t reference anything about the US government’s situation that the market didn’t already know, so that probably explains why both bond and stock bulls took advantage of the initial drop. The government should probably pay attention to Moody’s but that’s probably wishful thinking. The US deficit is too high but markets aren’t nervous about it *yet.* Moody’s just admitted that it was nervous but the market responded hat it was a worrywart. This is a bad situation in the big picture and in the future but for today, it was a bump in the road.
Today is a good gauge for the sentiment of the markets. We know we’ve been on a sentimental pendulum since the April lows. We know we’ve become progressively more optimistic about the future along the way. We didn’t know how robust our sentiment was though. If it were fragile, today would have cracked the sentimental shell around markets. It obviously didn’t.
Call it hubris, ignorance, or perceptive. Who knows what the optimistic attitude is actually rooted in. We’ll find out in time. In the here and now, the optimism is robust. There’s no derailing the bull until/unless we make new highs and/or a very recessionary headline/datapoint breaks.
The crowd is wildly bullish and it’s not going to abandon its view without a fight.
See you tomorrow.
-Mike
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