From the desk of Willie Delwiche.
- Thrust signals are typically reliable indicators of strength
- Lack of risk appetite and rising yields working against stocks
- Without marked deterioration in macro health, we still trust the thrust
The mid-August momentum thrust was just two weeks ago, but it seems longer than that. The S&P 500 has gone from up 4% for the month to down 3% for the month, in the process giving back half of the entire rally off of the June lows. It is possible that the volatility environment produced false signals of strength, but we are not ready to jump to that conclusion. The combination momentum and breadth strength seen prior to the mid-month peak has been a typically reliable indicator that further strength lies ahead for stocks. Two weeks of price action is not enough for me to throw out 40-years worth of data.
That being said, the market could struggle to display the strength that these indicators have signaled in the past as long as we remain in a risk off environment. Moreover, the struggle for stocks is more acute when they are trending lower and bond yields are trending higher. If we see more red-lights flashing on our Macro Health Check we will need to re-evaluate our position, but for now I am inclined to trust the thrust.