With the current valuations, not much is needed to put doubt (and caution) into the heads of investors. One day they think: these stock prices are fully justified, look at the economy, look at the fiscal climate, look at the low levels of interest rates. And the other day, like yesterday, they start feeling insecure: these stock prices are overrated, all future gains have already been priced in, this tax reform will not bring what we expect, borrowing costs are increasing.
A correction would not be improbable under these circumstances. But as we explained last Friday, overall stock prices are not excessively high, there is room for another increase. A correction will be just that: a correction.
All major US benchmarks closed lower on Monday, with the Dow and the S&P 500 having their worst day this year, as the appetite for equities was dampened by a pickup in borrowing costs. Both the Dow and the S&P 500 fell 0.67%. The NASDAQ did only marginally better, declining 0.52%. Volatility shot up. The VIX closed almost 25% higher. UVXY ETFs followed suit and closed 15% higher. XIV ETNs closed sharply lower, losing more than 6%.
Danny Daredevil continued his rise. His RSS closed at 13%. Adventurous Anny´s RSS remained unchanged at 23%, as she is still holding a cash position. Solid Suzy and Lazy Larry had to take a major step back. Their RSS dropped to below 100%.
None of our models gave a trading signal at the end of yesterday’s session.
RSS = Return Since Start | YTD = Year-To-Date | QTD = Quarter-To-Date | AAR = Average Annual Return
The Chapel Family – Episode 17
Anny, Suzy and Larry are doing the dishes. While Anny is hand washing the plates and cutlery, Suzy does the drying and Larry puts them away.
Suzy to Larry: “Can you work faster please? I’m always waiting for you. There’s no space.”
Larry: “This is my tempo.”
Suzy: “Then let’s switch.”
She pushes him aside, hands him over her tea towel and takes his place.
Then all three jump at the sound of the front door opening. Anny splashes the dishwater against the kitchen ceiling. Suzy drops a plate to the ground, which bursts into a thousand shards. Larry opens his mouth in utter surprise.
Danny steps into the room.
Anny: “Danny!!! Where have you been all this time? How could you leave us in such a way? We thought something happened to you! You’ve been away for ages!”
Suzy, Larry: “Yeah. Yeah.”
Danny, shrugging: “I have no idea what you are talking about. I just went out for a ride. I returned right after that. It wasn’t that long at all. Is something warping your sense of time?”