Uncertainty about the outcome of the Brexit negotiations has hit new highs, President Trump seems determined to scare the markets witless with his threats of escalating the trade war, debt problems in China are accelerating – the perfect background for a contrarian ‘buy’ signal.
Last week, investors yet again favoured bonds over any other asset class, despite central banks cooing dovish everywhere.
The Fed is cutting rates? No worries, buy bonds. The European Central Bank prepares to push rates even further into negative territory? Bonds are the ticket. The Bank of England gets the printing press ready again? Oh yes, some bonds would be great.
It seems that nothing can break the bond rally — or deflate the bond bubble, as critics would say. Inflows into bond funds have hit a record this year, in tandem with record high bond prices, but how long can the euphoria last?
Investors started last year full of optimism and ended it surrounded by doom and gloom. This year seems to have started in a bleak mood. So how likely is it that it will end on a positive note?
It finally happened: investors are so bearish that a contrarian “buy” signal has been triggered. The Bull and Bear indicator developed by researchers at Bank of America Merrill Lynch is finally indicating Buy, one year after climbing so high that it triggered a Sell signal.
If this is not yet capitulation, it sure feels like it. Money has been fleeing stock markets at record speed, and despite dovish signals from the Federal Reserve, investors are still not taking advantage of the buying opportunities the panic in the markets are throwing at them.
The list of reasons to worry in the market is growing longer by the day, and investors keep taking money out of risky assets – among them, European ones.
The phenomenon has been dubbed an “exodus from Europe” by analysts at Bank of America Merrill Lynch, who say there is “no surprise that the outflow from European high grade and high yield funds has been much more sizable than outflows from emerging markets debt funds.”
Last month has become known as Red October, not so much as a hint to the film starring Sean Connery as the commander of the defecting Soviet submarine by that name, but sadly, as an accurate description of the dominant colour on trading screens around the world.
The Halloween effect is a well-known seasonal quirk that pushes stock prices up between October 31 and May 1. After a horrible October for stocks, investors are anxious to know whether the market rout is over or it has more to run.
There is one indicator that could provide some clues. We’ve spoken about it before on this website. Bank of America Merrill Lynch’s Bull and Bear indicator triggered a “Sell” signal back in January of this year, and it is now close to a “Buy” one – although not yet.
There have been “massive” outflows from capital markets in the past week, but although they brought Bank of America Merrill Lynch’s “bull and bear” indicator close to the “buy” signal, they haven’t managed to trigger it.