David Rosenberg has a piece out that is relatively upbeat given the carnage in stock markets yesterday and his well-known bearish views. He notes the positive to the recent market declines; they have taken the froth out of a few markets, especially gold and the Canadian Dollar (CAD).
A lot of markets have had double digit corrections already. And from a technical perspective, this is a good thing. There a lot of evidence of markets being oversold across a swathe of markets.
Rosenberg writes:
As it stands, this is the first official correction in equities since the market came off the lows 14 months ago:
- The S&P 500 is now down 12% from the nearby highs.
- The Russell 2000 is down 14%.
- TSX is down 7%.
- Oil is down 21%.
- Copper down 19%.
- The CRB is off 15%.
- The yield on the 10-year note is down 80bps.
- Investment grade corporate spreads have widened 61bps while high-yield spreads have moved out 161bps.
- The VIX has surged 193%.
- The euro is down 15% and while the CAD has outperformed its commodity counterparts, it has sagged 7% from the recent highs.
- Since the market highs in the S&P 500, the best performing equity sectors have been Telecom, Consumer Staples, and Industrials; the worst three have been Financials, Energy and Health Care — in a sign of how the complexion has shifted towards a less cyclical stance.
Rosenberg is still bullish on gold in particular as he notes that it becomes a buying opportunity every time it tests its 200-day moving average, now at about $1100 an ounce. But, on the market tone overall, he notes:
Look, there’s no sense getting overly bearish and while those of us with cash on hand that had been waiting for this opportunity in Godot-like fashion, the correction comes as good news. But for the economy, it cannot be a bad thing to have oil prices come down, which helps add cash to consumer pocketbooks and protect profit margins, and of course this wonderful bond rally has acted as a source of social policy seeing as it has helped pull mortgage rates down to six-month lows, to 4.8% for the U.S. 30-year fixed rate product.
Watch out, though. While Rosenberg believes shares are oversold and due for a near-term bounce, he says that this is a rally he would fade because the fundamentals are still poor. Evidence comes from the index of Leading Economic Indicators (LEI), which has just rolled over – something Albert Edwards was talking about a month ago.
I guess this is as bullish a view as you’re going to get from Rosenberg.