One of our biggest short-term concerns is market sentiment. It was positive in December but became exuberant in January. Two figures provide some perspective on the level of this exuberance. The S&P 500 index is more than 400 points above its 200, 100 and 50-day moving averages, and it’s not the only one. All of the world’s major equity indices are also above their 200-day moving average and 98% are above their 50-day moving average. The second figure is an intra-index figure. Within the S&P 500, 85% of its constituent stocks are above their 200-day moving average. The last two months in equity markets have been truly exceptional, both in the magnitude and consistency of the upward movement. It seems clear to us that the sense of euphoria driving investors is exaggerated and that current valuations are a significant risk. Moreover, our Market Stress Nowcaster is showing rapid variations, reflecting the volatility that markets could potentially experience at the slightest catalyst, be it health, economic or a communication error by a central bank.
Source: Bloomberg, Unigestion. Data as at 3 February 2021.
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