Following days of vocal and in some cases quite vivid warnings and predictions that the resent record ascent in the S&P is unsustainable and is set for a sharp correction from some of the most prominent names in finance including Howard Marks, Paul Singer and most recently Jeff Gundlach, here is Bloomberg's Mark Cudmore who has now also cast aside his recent bullishness, and in his overnight Macro View piece warns that we may have seen the highs of the S&P for the summer, if not the year.
S&P 500 May Have Just Topped Out for the Summer
Summer market dynamics lend weight to the theory that the S&P 500 may have put in a multi-week high on Tuesday.
The index’s price-to-book ratio is at its highest level since 2003. Yes, it’s been up here since June and it was way more elevated from 1996 to 2002, but it now matters because the mood has suddenly turned.
The catalyst for the sentiment shift has been North Korea, but that’s rather beside the point. What’s important is that it’s the height of the American summer and nobody is going to be phoning in from their vacation to hastily buy the dip in U.S. stocks. Not when valuations are so stretched.
Many punters don’t have more capital to put to work anyway, with retail cash piles at their lowest level since 2000, according to survey data from AAII. The implication therefore is that many market participants are away from their screens and the majority of marginal standing orders must be stops to reduce exposure, rather than add.
Into that environment, the S&P 500 on Tuesday finally broke through its July 27 record high on the eighth day of trying. That caused a spike that will have stopped out a chunk of speculative shorts. And then the market promptly reversed before the end of day. Those bears will be forced to now chase the market lower when they check in.
Not to overplay the value of seasonal patterns, but there’s an intuitive reason why August is by far the worst month for the S&P 500 over the last 20 years -- people don’t like fighting the market from the Hamptons.
As a marginal extra negative, the Nasdaq and bellwether tech stocks failed to validate the latest leg higher in the S&P 500, which will disproportionately increase the number of bearish analyst notes, further fueling a negative spiral.