Pro Perspectives 1/31/20

January 31, 2020

We end the week and the first month of the year, with continued unknown on how the coronavirus will play out. 

And tonight is the formal exit of the UK from the European Union (the famed Brexit). 

With that, there continues to be de-risking in markets. 

Let's take a look at some charts as we head into the weekened …

Here's a look at UK stocks.  The FTSE is up 25% from the 2016 Brexit vote.  It is now, as of today, trading below the 200-day moving average.


Here's a look at U.S. stocks…

It was last Friday that we had a sell-off into the weekend driven by a spike in coronavirus fear, which created this technical reversal signal for stocks.  As I said, even with the very positive fundamental tailwinds for stocks, that technical signal was hard to ignore.  And that signal has worked thus far.  We now have a break of this trendline, which represents the rise in stocks following the verbal agreement on trade between the U.S. and China back in October.

We have a similar line that has given way in German stocks. 

So, we close the week with global stocks looking bearish.  U.S. yields are just above 1.5% — this is getting near the level in yields marked by major inflection points for the global economy over the past seven years: the potential Italian and Spanish debt default in 2012, the Brexit vote in 2016, and the ugliest moment of the U.S./China trade spat in August of last year.  
That said, this level of uncertainty isn't showing up in the VIX, which trades at just under 19.  Investors aren't paying up for hedges.