GFC low 10 year anniversary

Exactly 10 years ago to the day, the key U.S. stock index, the S&P500 traded to a low of 666 during the Global Financial Crisis and from which point the longest running bull market in U.S. history commenced. According to Investopedia, the bull market that started that day, officially ended in the last months of 2018 as U.S. major market indexes fell by more than 20 percent and ever so briefly entered a bear market.

The sharp reversal higher from the December 2018 2316.75 low to this week’s 2819.75 high, delivered a rally in excess of 20% across all major U.S. stock indices and according to the text book definition, a new bull market is underway. Interestingly, just like back in March 2009, the current rally has taken place without broader market participation. As Goldman Sachs highlighted in a recent research piece, the “current gap between equity performance and equity fund flows YTD is one of the largest since the GFC.”

The takeaway from this observation is there is still money on the side-lines waiting for an opportunity to enter the market. Last week’s better than expected U.S. GDP no doubt provided some comfort to equity investors that the slowdown in U.S. growth will not be as bad as feared and this is supported by another round of stronger than expected data overnight. ISM non-manufacturing coming in at 59.7 vs the consensus expectation of 57.3, while New Home Sales printed at +3.7% m/m vs consensus expectations of -8.7%.

That reaction to the better data in the stock market was limited, an indication that investors are perhaps waiting patiently for an opportunity to enter on a pullback and which suggests dips should be relatively shallow, perhaps back to the 2710/2690 support area discussed in recent articles. Alternatively, they might be waiting for a break/close above the 2815/25 resistance area as the catalyst to trigger wider participation. Either way, our view remains for the S&P500 to retest the September 2947 high as outlined on the chart below.

Turning to FX, the run of better than expected U.S. economic data has allowed the U.S. Dollar index, the DXY to close at its highest level in two weeks. There is a strong temptation to think that the U.S. dollar rally may continue higher from here, particularly given the strong seasonal pattern for February non-farm payroll data to beat the consensus estimate by approximately 50,000 in recent years. That said, there remains a strong layer of technical resistance in the DXY at 97.30/40 and again at 97.70/80 which needs to break/close above, to confirm the U.S. dollar uptrend has resumed.

Source Tradingview. The figures stated are as of the 6^th of March 2019. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

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