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Credit Market VS Stocks

So let’s see how does the Credit markets impacts the stock market 

SP 500 has retraced almost 27 % from its low of 2190 between 01-03 to 10-04-2020. 
A huge rally in a world when the US economy is set to enter into depression , the FED has single handedly managed to disconnect the stock from all fundamentals and made the SP 500 the most overvalued as it’s forward PE hits the highest number ever recorded.

This PE is the same level the S&P500 held on Feb 2020 , the SP 500 was at  all-time high."

In other words, at the start of the week stocks were valued the same as they were at the February all time highs.

Fast forward to today when the Fed's latest announcement which included purchases of junk bond ETFs and municipal debt which has terminally disconnected risk prices from any fundamental values and instead only the size of the Fed's balance sheet matters.

This has  sent the S&P as high as 2,818. And, in doing so, the forward PE multiple on the S&P has risen from the record 19.0x reached in February to a new all time high of 19.4x.

In other words, the market has never been more overvalued than it is right now.

Stocks exploded higher yesterday on announcements that the coronavirus pandemic appears to be slowing.

This is certainly an exciting development, but unfortunately, we are not yet in the all clear as far as systemic problems in the financial markets.

The debt markets (also called credit markets) are larger and more sophisticated than the stock markets.

With that in mind, the credit markets continue to signal MAJOR problems exist in the financial system. High yield credit has failed to catch a bid and is in fact trending DOWN during the last week.

Bear in mind, these are JUNK bonds, so you’d expect a struggle during an economic downturn. Far more worrisome is the fact that high quality credit (meaning credit for companies that are allegedly well financed/less risky) is ALSO struggling.


Again, the credit markets are signaling something BAD is happening “behind the scenes” in the financial system.

Stocks believe the worst is over, but credit tells us that is not yet the case. And credit is usually right.


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