Game of Trades: This Is a Worse Reading than the Bottom of 2008
The S&P 500 has had a 14 percent rally off its recent low, following a six-month period of dropping. Does that mean the pain is over? Given a number of economic indicators, it appears that there are a number of reasons to be cautious.
One overlooked indicator is looking at the percentage of fund managers taking higher than normal risks right now. This indicator is now at an even lower level since October 2008.
That’s an astounding data point. After all, in late 2008, the financial system was within hours of collapsing. The home market was imploding as job losses exploded higher. Today, there’s no sign of such extreme stress.
However, given the market’s recent surge higher, this record-low sentiment reading may indicate more downside in today’s markets.
Typically, investors get the best deals by going against the market’s current sentiment. But trader betting on a potentially quick rebound in markets may prove disappointed right now. And following the market’s rally of the past few weeks, this may not be the ideal time to buy into stocks.
One indicator that the worst is over will be a drop in 30-year Treasury yields. That likely won’t happen until well after the Federal Reserve lowers interest rates. With growth slowing this earnings season as well, caution is still warranted.