Liquidity Trumps Fundamentals
The market has been back in risk-on mode but with some strange internals as well as an ongoing disconnect with fundamentals. It has priced in a joyous cornucopia of Goldilocks assumptions:
- A return to global central bank liquidity and price supports
- A reversal of China’s deleveraging campaign with an abundance of stimulus measures
- A peaceful and prosperous end to global trade wars
- An elegant resolution to Brexit
- Never mind India and Pakistan
Equity markets have once again diverged materially from fundamentals as the perception of the central bank put from the world’s biggest economies overrides fundamentals. I’ve been admittedly surprised by how long this has been going on and how wide the divergence has become, but we are seeing now seeing substantial overhead resistance level for the S&P 500 at a time when challenging fundamentals are growing.