As you can tell from my posts this week I have been pre-occupied with family and not focusing on the daily events in the market. I logged in today to see the market higher on the hopes of a debt-ceiling deal

Also see the NAHB number was up and there was huge call buying yesterday, probably from people sitting in cash that are starting to feel the FOMO. Emotions are a real driver of financial decisions after all

I took a quick look at three things to give me a sense of whether there was a reason to go along with the crowd or not. I wanted to compare stocks to bonds, to the economy and to other risky assets

In the top chart today, I compare the graph of the 10 year Treasury yield with the SPX forward earnings yield. There is a relationship here for obvious cost of capital reasons but you can see it has disconnected this year

The earnings yield is more than 1% from where the 10 year suggests which equates to about 4 turns of P/E on the market. Stocks see better growth ahead but the bond mkt sees that has higher for longer and no cuts. This can coincide but the stock mkt was counting on cuts before

The middle chart looks at the SPX vs. the fundamental stock indicator popularized by Ed Yardeni. It combines jobless claims, CRB Raw Industrials Index and Consumer Confidence into an index of the economy that covers jobs, prices and sentiment

The economic measures are plumbing new lows while stocks are looking to break out. One must say that stocks are looking thru the bad news and seeing a soft landing ahead. Investors are looking to add risk to the books in spite of the economy, climbing the wall of worry

The last chart compares two risky asset selections - Nasdaq and Ethereum. Both are disruptive technologies, both rely on available and cheap capital, and both are preferred by traders and investors when sentiment is percolating

However, we see NDX hitting new highs while Ethereum is lagging. The sentiment is not bubbling up in crypto the way it is in AI stocks. Totally fair if investors feel AI is more disruptive but it goes to show the narrow focus of this rally

Risk sentiment in stocks, particularly tech stocks, is really starting to bubble up. Perhaps we are on the verge of a new breakout with no bad news ahead of us. Fed on hold, debt ceiling solved, and economy in a soft landing

Perhaps we are betting against a lot of other metrics that should have more than a casual relationship with what we are willing to pay for something

Stay Vigilant

#markets #investing #stocks #bonds #cryptocurrency #economy #stayvigilant