Animal Spirits: Live From Future Proof

Every recession is different. However, the data shows that recessions tend to bottom out nearly midway through. The problem? Knowing when that midpoint is.

Given that some don’t even see the US in a recession right now, that’s an argument that the bear market may still have a long way to go. That’s true even after the stock and bond markets have now had their worst 8 month start to a year ever.

Typically, stocks and bonds perform differently from each other. When investors are fearful, they tend to sell stocks and buy bonds. And when investors are greedy, bonds are sold to buy stocks.

This year, we’ve had a stock market pullback from high valuations. And bonds have been selling off as interest rates have started to rise. That’s led to both assets performing poorly. And it’s why traders have largely been buying put options, rather than call options, this year.

In the meantime, the US dollar has seen tremendous strength. It’s hit multi-year highs against a number of other currencies. And it trades at par with the Euro for the first time in nearly 20 years.

The strong demand for US dollars is fueling this strength. But a strong dollar will also weigh on US corporate earnings, particularly for international companies. As long as traders are looking defensively, assets will likely be poor performers.

To listen to the full podcast, click here.