As U.S. stock bulls run, can animal spirits keep pace?
U.S. equity index futures mixed, little changed
Euro STOXX 600 index up ~0.4%
Dollar, gold gain; bitcoin slips; crude down >1%
U.S. 10-Year Treasury yield falls to ~3.74%
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AS U.S. STOCK BULLS RUN, CAN ANIMAL SPIRITS KEEP PACE?
The S&P 500 index .SPX ended Monday at 5,762.48, which was its 43rd record closing high so far this year.
Meanwhile, traders are also watching the consumer discretionary / consumer staples ratio as another means of assessing just how robust animal spirits may be.
Trading action in consumer discretionary stocks can reflect confidence, or lack thereof, in the economy since companies in this group produce or sell non-essential items. On the other hand, staples' behavior can provide clues into just how defensive market positioning may be, since companies in this group produce or sell products that consumers cannot forgo even in tough economic times.
Last Friday, the ratio of the Invesco S&P 500 equal weight consumer discretionary ETF RSPD.K vs the Invesco S&P 500 equal weight staples ETF RSPS.K hit its highest level since July 16:
Of note, this ratio showed a bearish divergence into the S&P 500's early-2022 then record highs, and it exhibited a bullish convergence into the SPX's October 2022 trough.
The ratio diverged into the S&P 500's July 2023 high and again into the March 2024 high.
Of concern now, despite higher SPX highs, the ratio ticked down on Monday, and has yet to exceed its July peak.
Bulls will want to see the ratio quickly stabilize, surpass its July high, and get back in gear to the upside with the SPX. A more protracted divergence may leave the S&P 500 vulnerable to a significant reversal.
(Terence Gabriel)
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FOR TUESDAY'S EARLIER LIVE MARKETS POSTS:
ASSESSING THE IMPACT OF POTENTIAL TAX HIKES ON FRENCH STOCKS - CLICK HERE
EUROPEAN BANKS FEEL THE SQUEEZE AS ECONOMY FALTERS - CLICK HERE
ITALY’S FISCAL PLAN IS DOABLE, BUT ONLY UNTIL 2027 - CITI - CLICK HERE
LUXURY DOWN AGAIN, AUTOS STEADY AS Q4 KICKS OFF - CLICK HERE
EUROPE BEFORE THE BELL: FUTURES STEADY, M&A ON THE RADAR - CLICK HERE
MILDER INFLATION SEEN SETTING UP RATE CUTS - CLICK HERE
DiscretionaryvsStaples10012024 https://tmsnrt.rs/3zGKhAL
(Terence Gabriel is a Reuters market analyst. The views expressed are his own)
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