S&P 500

Authored by Richard Breslow, a former FX trader and fund manager who writes for Bloomberg

We’ve all been going through a period of re-evaluation. Not personally focused, to be sure. No evidence of self-doubt from any quarter. And never have people been more convinced that they can size up the next person within a matter of seconds. But there’s been plenty, and rapid, rethinks on what is, and should be, driving markets.

One of the horses we have beaten to death starting in 2013 (with Why The TBAC Is Suddenly Very Worried About Market Liquidity) is that the relentless growth in ETFs in particular, and passive investing in general, is one of the greatest threats facing the US equity market for one main reason: "phantom liquidity", and specifically the thought experiment, conducted back in March 2015 by Howard Marks, of what happens if and when the ETF selling begins.

This is what we said one week ago:

With the dollar bouncing back and bond yields and breakevens rising, RBC's head of cross-asset strategy, Charlie McElligott, 'sniffs' that the market is trying to convince itself to turn "cautiously constructive" again on Trump tax movement.

However, as he details below, there are a few red flags to pay attention to...

SUMMARY:

“Buy these 50 stocks and that’s all you need” to get rich. That was the early 1970’s as the stock market bounced back from a deep correction to make new highs (point 1 on the chart below).

European stocks rebounded after the biggest one-day drop since November, alongside S&P futures, while Asian equities posted modest declines after yesterday's weak US close. Gold and yen slid, while the dollar gained on the latest Mnuchin comments to the FT according to which Trump was "absolutely not" trying to talk down the dollar.