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View from Toronto Video: Questions for a Week with a Negative Outlook

02/05/2018 3:01 pm EST

Focus: MARKETS

Ziad Jasani

Managing Director and Partner, Independent Investor Institute

We see a higher probability for a negative start to the week resolving to a bounce (swing-low) posture by week’s end if a half-dozen indicators play out. More from Ziad Jasani of the Independent Investor Institute, writing and videocasting on Monday.

Watch Ziad’s Market Strategy Video Session (recorded Feb. 5)

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Equity Markets have enjoyed roughly a decade of stimulative monetary policy, culminating in a goldilocks marketplace (2017) late-stage in the cycle, with one key element remaining at bay, inflation.

With recent signs of inflation picking up (average hourly wages, US CPI), bond yields are rising to dangerous levels, and some of the key questions being asked are:

  • Will central bankers be forced to hike rates faster than Mr. Market has priced in?
  • Has the positivity from U.S. tax reform and synchronized central-banker growth been priced in? Or overpriced?
  • Will the Eurozone have the political will to print more money if needed, now that Merkel’s party/coalition leaves Germany with less power?
  • Will the BOJ admit defeat and print, print, print till infinity?
  • Will Trump’s negotiating tactics (i.e. trade wars) backfire and slow global growth?
  • Will the USD maintain its world-reserve status? If not, will Commodities explode higher? So far, the world’s biggest market, S&P 500 (SPX) has pulled back 3.85% from Jan. 26, 2018 all-time highs; there is likely another potential -1.7% to -3.05% to go before a strong bounce becomes realistic.

Global economic and earnings data remain strong, and the USD remains considerably weak, making it a lower probability for a correction (-10 to -15%) to begin in Q1 2018.

Furthermore, economic data is light this week, outside of UK Inflation, Chinese PPI, and major government bond auctions that could push yields up further.

We see a higher probability for a negative start to the week resolving to a bounce (swing-low) posture by week’s end if:

  • The S&P 500 is able to remain above 2,678.
  • CBOE Volatility Index (VIX) swings high under 17.
  • Oil (WTI) remains above $63
  • The euro/US dollar (EUR/USD) pair remains below 1.254.
  • Gold remains below $1,355.
  • 10-year US Treasury yield remains below 2.91%.

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