An Eye on M1
All of the monetary aggregates have slowed substantially, and real M1 growth is flagging a 1% stall-speed growth economy once we get passed all the pre-tariff buying activity and fiscal sugar-high that skewed Q2 GDP.
The problem with this story is that it does not match the hype. Nor does M2.
Real M1 and M2
Watching M1 is Useless
If we are supposed to keep an eye on M1, it sure is not clear why. The dashed lines above so instances in which M1 growth turned negative and nothing happened for years.
I also added M2. It’s equally useless.
Watching these monetary aggregates seems downright silly.
Cyclicals vs. Defensives
Seeking Alpha says Cyclicals Vs. Defensives (Aka The Market’s Achilles’ Heel).
The chart shows the cyclicals vs. defensives relative performance line against the S&P500. The key point is that cyclicals drove the last leg of the bull market, hence why I say this is basically the market’s Achilles’ heel.
The cyclicals vs. defensives line takes the ratio of the equal weighted performance of cyclicals (materials, industrials, technology) vs. defensives (telecoms, utilities, healthcare). As this line seems to trend during the study period, I have added a linear trend line for analytical purposes (the indicator is stretched vs. trend also).
As you can see on the chart, it’s been the solid performance of cyclicals relative to defensives that drove the last leg of the bull market. The extreme runup in the cyclicals vs. defensives relative performance line can unwind in one of two ways: 1. A bullish rotation: where the S&P 500 heads higher but defensive sectors take the lead; or 2. A bearish rotation: where the S&P 500 undergoes a correction/bear market, and defensives simply fall less than cyclicals.
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