US Markets vs Govt Shutdown: Stock Markets at all time highs

By: Submissions

ARB Cap writes: As US government shuts down, markets march higher. Political turmoil does not seem to immediately affect equity bulls. Much of it has o do with the US bond market selling off with 10 year rising over 3% mark only for the second time in the last 5 years. As money pours out of bond markets, it is rolling into equity markets. Are we on the cusp of a super inflation cycle of the likes seen in 1980s ?

The 10 year US treasury bond yield is at 2.64% but it is breaking above the long term bear trend existing since 1994. Money is pouring out of bond markets as the carnage is about to begin. As yields rise, markets start to expect higher inflation cycle which in turn raise rate hike expectation. It is worthwhile to remind the last it did flirt with breaking out of the bear trend in 2014, yield fell back sharply down again.

Consumer Sentiment

The consumer sentiment trend has been rising.

Technicals

Volume breakout in S&P500 index. The index is at all time highs even as political turmoil takes over in washington.

Dow jones Transport index has moved 20% since December. The transport index is often a premover to the S&P index. We see no signs of exhaustion as volume are still solid positive.

The TREND indicator from abrcap is strongly positive as markets break to new highs. As many of you know, this indicator has always stayed positive for the last 3 months and even when markets has been taking intermediate corrections, the indicator has been screaming buy. Currently it is at +4 which is the highest it can go. Market internals are strongly bullish.

The institutional ownership on an average has been falling all through 2017. For a sustainable rally long term, one needs the institutional money to keep supporting the rally. It seems more if retail money is taking over from institutional hands. So weak hands are replacing strong hands. It does raise the question then if we are in the last of a superlative bull run in equity markets.

The reason for rising yield on 10 year could also be sustained political uncertainty is making overseas investor nervous onto holding US bonds. China has conveyed that it will be reducing its US treasury purchases. Things are starting to bleak for US bonds.

US Market shutdown
If lawmakers can’t get the job done by 12:01 a.m. Eastern Time on Saturday, hundreds of thousands of workers would be furloughed, many federal contracts with businesses would be suspended and government services that support private firms would be halted. That means, for example, mortgage applications would be delayed and drilling permits languish. While it’s difficult to separate effects of the 16-day shutdown in 2013 from debt limit brinkmanship during the same period, a report from the Obama administration budget office estimates the last partial closure knocked 0.2-0.6 percentage point off of GDP for the quarter.

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