April Fools’ should be renamed Markets Day in honor of the long history of financial markets making everyone look foolish. From tulips, to the South Sea Company, to railroads, to dotcoms — the joke is always on us:
“Until you're ready to look foolish, you'll never have the possibility of being great. ”
― Cher
No Joke Charts
April Fools’ should be renamed “Markets Day” in honor of the long history of financial markets making everyone look foolish.
From tulips, to the South Sea Company, to railroads, to dot-coms — the joke is always on us: When everyone is going in one direction, the market inevitably goes in another. I’ve fallen for that joke too many times, so I may now be overly skeptical of consensus narratives.
But I’ve never seen a consensus as consensus as the consensus is right now. Is anyone bullish on either stocks or bonds? If so, they are understandably keeping shtum: In the age of social media groupthink, it’s hard to go against The Current Thing, and The Current Thing in finance is being bearish. Is now the time to risk looking foolish? I don’t know, but maybe some charts will help us figure out if the joke’s on us. Again.
The Ruble has done a full round trip:
You definitely would have been called a fool for buying the Ruble crash, and you definitely would have been right. This one isn’t even obvious in hindsight. Markets are amazing.
Gold is lackluster:
Between the Ruble reversing and gold doing not much of anything, the market may be signaling that geopolitical tail risks are lower than we all seem to think.
Inflation risks may be lower, too:
5-year inflation breakevens are up to 3.34%, but the 5-year forward rate is a full point lower at 2.34%. Which is the market’s way of telling us this, too, shall pass.
Recession risks may also be overstated:
High yield bonds are trading just 340 bips over Treasurys, which, if you think markets still have any predictive value, would probably not be the case if we were headed into a deep recession.
In the meantime, corporates are making bank:
Everyone is wondering how equities can be back near their highs with all of the macro risks around. But maybe it’s as simple as earnings up, stocks up.
And, finally, the obligatory 2s/10s chart:
The 2s/10s yield curve is nearing inversion, which everyone outside of the Fed will tell you is a sign that the end is nigh. But zooming out, you can see the end generally doesn’t last very long. Unless Powell goes full Paul Volcker on us, you’d expect that yield curve to be trending up again relatively soon.
In which case, the joke would be on the Fed. And the bears.
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