Former Goldman president, and current White House chief economic advisor - as well as the person who supposedly is engaged in a bitter fued with Peter Navarro over the shape of future US trade policy - Gary Cohn appeared on Fox News Sunday, and spoke at length to Chris Wallace about some of the key economic policy changes to be implemented.
Looking at the most recent CFTC Commitment of Traders report, BofA makes two notable observations ahead of what may be a volatile week between the Fed's 25bps rate hike announcement on Wednesday, just hours after the Dutch General Election, and on the same day as the US debt ceiling expiration hits.
While the overall economy appears to be humming along, at least according to the Fed which on Wednesday is expected (with 100% certainty according to the market) to hike rates by 25bps for the second time in three months on concerns it has fallen behind the inflationary curve, with last week's payrolls report providing some validation despite prevailing weakness within "hard data" in recent months offset by soaring "soft" sentiment reports, one area of material concern has emerged: a sudden collapse in loan growth in general, and the all important Commercial and Industrial Loan segment in p
After the inflation in P/E multiples has sent the S&P500 to to a level above the 90% percentile of all historical valuations, Goldman has called a time out, and says that there will be no more multiple expansion. As a result only one thing will push stock prices higher "as equity valuations compress as interest rates rise" - higher profits.
When an asset takes out horizontal resistance to the upside, it is nice to see the old resistance tested as new support, before pushing higher.
The S&P 500 traded sideways for nearly 18-months, before breaking out to the upside and then testing old resistance as new support at (1) below. Once this support held, the S&P took off to the upside in short order.
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