Daily Brief - The five pillars of the bull market (Nov 5, 2021)
Shorting this bull market has proven a difficult task. Just ask Michael Burry (of Big Short fame) about his TSLA puts.
On Wednesday we hosted an editorial commentary expressing the view that this was the peak of the bull market. It’s only fair to give voice to the other side of the story.
Here are five reasons keeping markets afloat.
One, bonds will keep stocks propped. Here’s the pricing of equities compared to bonds: https://toggle.ai/chart/spx/spx.erp_ibes_forward_12m. Bonds are still expensive compared to equities, and this drives allocation of money into the stock market.
Two, the Fed tap is open. Yes the Fed will taper, which means that instead of $120bn per month it will inject $105bn per month on the market, then $90bn, and so on.
Three, the Fed tap can reopen. Most importantly, QE can and will resume next time a major crisis looms - or an election, for that matter. Banks and governments have got hooked on QE, and it will be here to stay.
Four, economic outcomes are strong. Leading indicators for the economy are strong, check out the one indicator to rule them all, the New Orders ISM survey: https://toggle.ai/chart/us/us.pmi_new_orders.manufacturing.ism. It’s at 60, which is as good as it gets.
Five, it’s hard to kill the bull. Momentum begets momentum, a fact that quant investors have exploited for decades. Strong markets allow companies to raise capital and invest, and this furthers growth and good economic outcomes.
So as you decide whether to keep or sell your stocks, remember that hedgies have tried to short the market since 2015. Much good it did to them.