The Recent EuroStoxx 50 Rally Looks Fragile

Looking from a few different perspectives, the rally in equity markets looks fragile. Flows have been flat to declining and analyst expectations for earnings-per-share growth for 2019 continue to decline, reflecting the declining growth momentum we have been observing for some time. Looking at their beta to equity markets, macro hedge funds and commodity trading advisors seem to be covering shorts and remain bearish.

In addition, low liquidity may be part of the story, as the chart demonstrates for the EuroStoxx 50 index. We see that over the last two weeks, the index is up nearly 5%, yet the traded volume has been around 25% below the short term daily average. This suggests to us that investors remain fairly cautious despite markets grinding higher, and as the bad macro news piles up, they are likely to pull out of growth-oriented assets like equities.

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