Just Like a Hyperactive Toddler

Many parents have experienced the mysterious energy that keeps some toddlers on their feet and running around all over the place, instead of lying down and having a much-needed nap with daddy. Of course, it is usually daddy that really feels like a nap, but that’s beside the point. The adult knows that if the hyperactive child does not rest, the odds of a major “meltdown” later in the day will increase exponentially, and everyone in the house will suffer. The market is starting to behave an awful lot like the hyperactive, diapered, bundle-of-joy.

The fact that we are in a bull market has been well documented by us for some time now, but so has the idea that a healthy bull market requires some rest periods in order to stay healthy. We have not seen a 5% correction since the summer of 2016. Like our proverbial toddler, if we don’t get a rest period soon, there will be tears later. We continue to expect a correction.

As far as fundamental data is concerned, the Fed’s favorite inflation gauge, the personal consumption expenditure (PCE) continues to read “lowflation” with a drop to 1.3% in August.

The Fed is looking past these low inflation reads, but if over the next couple of months, the PCE rate does not at least stabilize, then “one more rate increase this year” may not materialize. This is particularly so, since wage increases were 0% compared to July. The Fed will have to depend on its balance sheet normalization to encourage bond rates higher. Briefing.com’s summary of the numbers is printed below.

CategoryAUGJULJUNMAYAPRPersonal Income

Total Income0.2%0.3%0.0%0.3%0.1% Wage and Salary0.0%0.5%0.4%0.1%0.6%Disposable Income0.1%0.2%0.0%0.4%0.2%Savings Rate3.6%3.6%3.7%3.9%3.7%Personal Consumption

Total (Nominal)0.1%0.3%0.1%0.2%0.3%Total (Real, Chain $)-0.1%0.2%0.1%0.3%0.1%Core PCE Deflator



The AAII independent investor survey shifted 6.8% from bullish to neutral and bearish. Bullish sentiment now stands at 33.3%, while neutral sentiment is 37.9%, and bearish sentiment 28.7%.

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The National Association of Active Investment Managers exposure index (NAAIM) has been weak for the last three months and is displaying a negative correlation with the S&P 500. This week, both the NAAIM index and its correlation with the SPX have started to turn up. At this point, it is a neutral signal since the average has flattened (chart below).


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The put:call ratio has spiked down; 12 of the last 15 down-spikes have resulted in corrections in the SPX. This time, it seems we have one of the 3/15 situations where the SPX continues to rise, although that could change at any time (chart below).

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The long-term fundamental picture also confirms that the bull market still has at least twelve months lelft (chart below).


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Gold has been pressured down by the recovery in rates and the dollar (chart below).

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Inflation expectations continue to be tempered by the rise in rates, sending both TIP and gold down in response (chart below).

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