The strong positive bubble readings in tech identified by the FCO supercomputer resolved last week in a steep correction. Given the price action in various sectors, the consensus among market technicians is that last week’s move was a “risk-on rotation” as investors trimmed high-priced FANG and growth stocks to purchase undervalued names in energy, financials, and other areas, which have been underperforming.
Though general valuation levels for the US stock market argue for below-average returns over the next decade, as Ed Easterling recently explained on our program, confidence in the growth outlook will continue to provide support for stock prices until market participants switch from risk-on internal rotations to risk-off external rotations into cash and bonds.
This final turning point will likely take place once earnings growth peaks, coinciding with a protracted economic slowdown in the world’s largest economy, which is why we decided to get an update from economic “superforecaster” Jim O’Sullivan at High Frequency Economics on our program last week.
This post was published at FinancialSense on 06/12/2017.