Equity markets ripped to new all-time highs last week, re-confirming the bull market that began March 6th, 2009. We are now in the midst of the second longest bull market in history spanning 2,685 days generating 220.04% and 17.44% of cumulative and annualized returns respectively.
Short covering, sound economic news, and continued central bank accommodation all factored into what has amounted to an 8% bounce off Brexit lows on June 27th. It was notable this week that equity markets sustained a healthy rally despite a backdrop of rising interest rates. Treasury yields beyond two years climbed between 0.10%-0.20% while high yield spreads tightened further. Even though spreads have tightened substantially since the widest levels in the first quarter, they are still approximately 100-375 wider today than the tightest levels back in 2014.
Breadth measures and technical indicators are both signaling encouraging anecdotal support to the recent rally. Cumulative advance/decline ratios, new high/low spreads, and percentages of stocks making new highs are all trending positively across the U.S. equity market.
U.S. economic releases have been beating estimates by a decent margin which has driven the Citi Economic Surprise Index to its highest level since January 2015. Strong June retail sales of 0.6% (0.1% expected), moderate inflation CPI 1% (core CPI 2.3%), and strong industrial production of 0.6% (0.3% expected) made up the majority of the bullish case while fewer job openings (JOLTS), a strengthening U.S. dollar, and high equity market valuations gave the bears something to point to. It should be noted that valuations remain one of the primary concerns swirling around the U.S. equity markets today, but can certainly remain high for an extended period and even push higher.
Global markets surged last week with most European and emerging markets climbing 4%-6%. China economic reports were encouraging with a 6.7% GDP growth rate last quarter (6.6% expected), double digit growth in retail sales, and a jump in debt measures in June. Local currency Japanese stocks rallied sharply as well. The party of Japan’s Prime Minister Shinzo Abe won elections last week in convincing fashion which is being read as an endorsement of his policies. Accordingly, a 10 trillion Yen fiscal package and potentially more BOJ easing were two widely telegraphed political initiatives that found their way into the news last week.
