Tuesday, August 09, 2016

U.S. equity market absolutely flat

If there were ever a flat day in the U.S. equity market, this was it.  Some individual stocks moved a bit, but it is hard to find any that did so meaningfully, at least in portfolios here.  Volume was only slightly above half of the 90 day average and more than 20% below the ten day average.

The market averages are mostly at highs, but it does not feel like that.  Looking at the huge ETF SPY, the short interest is 28%, not reassuring at the moment, and the dividend yield is 2%, not bad relative to other market yields.  We are standing at the crossroads.  If the market has a reason to rise, that short interest will need to cover and it could mean a big move up.  If the market gets bad news, there is little to prevent a precipitous decline.

Equity p/e's trade on the cost of money and the outlook for the future.  If something clouds the outlook, even in a relatively stable financial market, that could unnerve investors.  There is no collapse on the horizon but a burst up of consequence and a 10% pullback are both possible.

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