Positioning in U.S. stocks is flashing a short-term warning sign as the market hits record highs and shrugs off rising Covid cases, lockdowns and weaker economic data. Horizon Investments is noticing rising retail investor demand for call options. That demand is similar to what was observed in August just ahead of the September pullback in stocks. As for professional traders, the CBOT’s data shows they’re essentially flat, erasing the multi-year high in bulls reached in October. While retail investor positioning is generally a poor barometer for timing short-term twists and turns in the market, it has our attention and we are monitoring it.
The task of interpreting the positioning data is made harder by politics and the Federal Reserve. Any drop for equities is likely to be aggressively bought as Congress moves quickly to strike a stimulus deal before New Year’s Eve. Meantime, the monetary stimulus already injected by the Fed and the end of the election’s uncertainty are reviving animal spirits.
Factor volatility in U.S. markets has calmed down after the strong move to value. The fact that the tech-heavy NASDAQ beat the S&P 500 last week indicates the value/growth battle will not be a clear-cut affair. That said, small-cap stocks beat the S&P 500 as well, and we think that trend is likely to continue.
We continue to favor emerging markets and Asia over Europe due to better growth stories, more favorable equity sector composition and the drop in the dollar. Brexit negotiations are another reason to avoid Europe.
Bond Market Breakout or Fake Out? Two levels to watch if this is a real breakout higher in Treasury yields or the third fake-out of the pandemic: the psychologically important 1.0% level in the 10-year note and the post-Pfizer vaccine high of 1.77% for the 30-year bond. Those key levels are perilously close by.
Credit markets completely believe the Fed will hold rates down for a long time to come. Spreads are tight and getting tighter. Any widening should be viewed as an opportunity to increase exposure.
What to Watch This Week
Covid and vaccines – The U.S. Covid numbers are plainly awful and set to get worse; vaccines cannot be administered fast enough. Economic restrictions are coming back as hospitals are overwhelmed, while rollout plans for the first vaccine doses are coming together. Watch FDA discussions on Thursday.
Stimulus talks – A deal in the $900 billion range is what markets expect. Aid to state and local governments and small businesses could go a long way to bridging the gap as businesses are forced to shut down again.
ECB meeting – European Central Bank (ECB) President Christine Lagarde has her work cut out for her. Europe’s economic recovery looks tenuous, and inflation is not expected to hit the ECB’s target anytime soon. Trader expectations for additional easing are exceptionally high. If that isn’t met, the Euro may rally, adding another blow to the continent’s recovery.
This commentary is written by Horizon Investments’ asset management team. Please reach out to Chief Investment Officer Scott Ladner for interviews at 704.919.3602 EXT-3602 or sladner@horizoninvestments.com.
To download a copy of this commentary and the chart of the week, click the button below.
To discuss how we can empower you please contact us at 866.371.2399 ext. 202 or info@horizoninvestments.com.
Nothing contained herein should be construed as an offer to sell or the solicitation of an offer to buy any security. This report does not attempt to examine all the facts and circumstances that may be relevant to any company, industry or security mentioned herein. We are not soliciting any action based on this document. It is for the general information of clients of Horizon Investments, LLC (“Horizon”). This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any analysis, advice or recommendation in this document, clients should consider whether the security in question is suitable for their particular circumstances and, if necessary, seek professional advice. Investors may realize losses on any investments. It is not possible to invest directly in an index.
Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. This commentary is based on public information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinions expressed herein are our opinions as of the date of this document. We do not intend to and will not endeavor to update the information discussed in this document. No part of this document may be (i) copied, photocopied, or duplicated in any form by any means or (ii) redistributed without Horizon’s prior written consent.
Other disclosure information is available at www.horizoninvestments.com.
Horizon Investments and the Horizon H are registered trademarks of Horizon Investments, LLC
©2020 Horizon Investments LLC
Insights
Record High S&P 500 Ignites Unhealthy Retail Investor Interest
Positioning in U.S. stocks is flashing a short-term warning sign as the market hits record highs and shrugs off rising Covid cases, lockdowns and weaker economic data. Horizon Investments is noticing rising retail investor demand for call options. That demand is similar to what was observed in August just ahead of the September pullback in stocks. As for professional traders, the CBOT’s data shows they’re essentially flat, erasing the multi-year high in bulls reached in October. While retail investor positioning is generally a poor barometer for timing short-term twists and turns in the market, it has our attention and we are monitoring it.
The task of interpreting the positioning data is made harder by politics and the Federal Reserve. Any drop for equities is likely to be aggressively bought as Congress moves quickly to strike a stimulus deal before New Year’s Eve. Meantime, the monetary stimulus already injected by the Fed and the end of the election’s uncertainty are reviving animal spirits.
Factor volatility in U.S. markets has calmed down after the strong move to value. The fact that the tech-heavy NASDAQ beat the S&P 500 last week indicates the value/growth battle will not be a clear-cut affair. That said, small-cap stocks beat the S&P 500 as well, and we think that trend is likely to continue.
We continue to favor emerging markets and Asia over Europe due to better growth stories, more favorable equity sector composition and the drop in the dollar. Brexit negotiations are another reason to avoid Europe.
Bond Market Breakout or Fake Out? Two levels to watch if this is a real breakout higher in Treasury yields or the third fake-out of the pandemic: the psychologically important 1.0% level in the 10-year note and the post-Pfizer vaccine high of 1.77% for the 30-year bond. Those key levels are perilously close by.
Credit markets completely believe the Fed will hold rates down for a long time to come. Spreads are tight and getting tighter. Any widening should be viewed as an opportunity to increase exposure.
What to Watch This Week
Covid and vaccines – The U.S. Covid numbers are plainly awful and set to get worse; vaccines cannot be administered fast enough. Economic restrictions are coming back as hospitals are overwhelmed, while rollout plans for the first vaccine doses are coming together. Watch FDA discussions on Thursday.
Stimulus talks – A deal in the $900 billion range is what markets expect. Aid to state and local governments and small businesses could go a long way to bridging the gap as businesses are forced to shut down again.
ECB meeting – European Central Bank (ECB) President Christine Lagarde has her work cut out for her. Europe’s economic recovery looks tenuous, and inflation is not expected to hit the ECB’s target anytime soon. Trader expectations for additional easing are exceptionally high. If that isn’t met, the Euro may rally, adding another blow to the continent’s recovery.
This commentary is written by Horizon Investments’ asset management team. Please reach out to Chief Investment Officer Scott Ladner for interviews at 704.919.3602 EXT-3602 or sladner@horizoninvestments.com.
To download a copy of this commentary and the chart of the week, click the button below.
To discuss how we can empower you please contact us at 866.371.2399 ext. 202 or info@horizoninvestments.com.
Nothing contained herein should be construed as an offer to sell or the solicitation of an offer to buy any security. This report does not attempt to examine all the facts and circumstances that may be relevant to any company, industry or security mentioned herein. We are not soliciting any action based on this document. It is for the general information of clients of Horizon Investments, LLC (“Horizon”). This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any analysis, advice or recommendation in this document, clients should consider whether the security in question is suitable for their particular circumstances and, if necessary, seek professional advice. Investors may realize losses on any investments. It is not possible to invest directly in an index.
Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. This commentary is based on public information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinions expressed herein are our opinions as of the date of this document. We do not intend to and will not endeavor to update the information discussed in this document. No part of this document may be (i) copied, photocopied, or duplicated in any form by any means or (ii) redistributed without Horizon’s prior written consent.
Other disclosure information is available at www.horizoninvestments.com.
Horizon Investments and the Horizon H are registered trademarks of Horizon Investments, LLC
©2020 Horizon Investments LLC