We published a bearish view on US stocks today on Seeking Alpha. Below are some excerpts:
- Market breadth is deteriorating rapidly and given the mounting economic headwinds from COVID-19, the downside potential is huge.
- Divergences between the S&P500 and the equal-weighted index are growing, while the average stock in the MSCI World Index peaked in 2018 and looks to have posted a lower high.
- Policy support to the market has led investors to believe that even modest corrections will be avoided. This creates the potential for waterfall declines.
“Market breadth is deteriorating rapidly which has previously marked short-term market peaks. We think that this time will be no different and given the level of undervaluation and mounting economic headwinds as COVID-19 intensifies, the downside potential is huge.”
“It is also worth noting that the average stock in the equally-weighted MSCI World Index is actually down 3% since its January 2018 peak and looks to have posted a lower high – one of many signals that the S&P500 bull market is losing steam and could be ready to turn.”
“Policymakers have succeeded in convincing investors, and increasingly retail investors, that stocks will not be allowed to fall as every minor correction has been met with stimulus measures. Many investors are now simply unable to imagine a downside reversal just when one looks the most likely to occur. This creates the potential for waterfall declines.”
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