A precarious scenario looms over financial markets as current elevated valuations find their justification in the hope of declining rates and the promise of a recession-free future. The latest data reveals that, for the first time since April 2022, Fund Manager Survey (FMS) investors are not predicting a recession, accompanied by a surge in global growth optimism.
However, a closer look reveals ominous signs:
- Industrial Contraction: Industrial production Year over Year (YoY) is experiencing contraction, a historically reliable precursor to recessions since 1966.
- Tech Bubble 2.0 Concerns: The S&P 500 Technology sector now comprises a substantial 29.9% of the index, raising echoes of the Tech Bubble 2.0. A negative divergence in Apple’s stock performance intensifies worries about the sector’s sustainability.
As the market rides on the delicate assumption of a recession-free environment, analysts warn of potential pitfalls. The historical context of industrial contraction preceding recessions and the expanding dominance of the tech sector in the market spotlight heighten concerns. As the market continues its bullish trajectory, a cloud of uncertainty looms, casting doubts on the sustainability of current highs and underscoring the fragility of the assumptions that underpin them.
Sources:
Justification for current elevated valuations is that rates will go down and there will be no recession. Fingers crossed pic.twitter.com/zl6XlJpard
— Michael A. Arouet (@MichaelAArouet) February 14, 2024
Everytime this happened it ended in a recession since 1966
Except in 2015 pic.twitter.com/qGXn8YRyx1
— Game of Trades (@GameofTrades_) February 14, 2024
#recession … #Tech Bubble 2.0 edition https://t.co/Okqp2WVAV8
— Invariant Perspective (@InvariantPersp1) February 14, 2024
S&P 500 Technology sector now 29.9% of the S&P 500.
98 years of history. #macro #hope #technology $XLK pic.twitter.com/dyf0dlO5I8— Kantro (@MichaelKantro) February 14, 2024
For the first time since April 2022, FMS investors are not predicting a recession (top). Global growth optimism is also at its highest since February 2022 (bottom).
via BofA pic.twitter.com/UeigsIu1fs
— Daily Chartbook (@dailychartbook) February 14, 2024
$AAPL’s negative divergence continues more so today, moving below yesterday’s lows despite the market significantly higher. https://t.co/1oUJt8wpHy
— Swordfishvegetable (@Swordfishv44183) February 14, 2024