On the other hand, the deterioration in U.S. stock market internals has been decidedly bearish. Both the NYSE Composite and the S&P 500 have significantly more 52-week lows than 52-week highs. Similarly, the number of advancing stocks relative to the number of declining stocks for both indexes has been steadily dropping since mid-May. What these breadth indicators tell you is that fewer and fewer stocks are carrying the entire ship. Like Atlas trying to hold the weight of the world on his shoulders, should he shrug, the benchmarks may buckle.
If nothing else, we may be witnessing a “Great Recalibration.” (Did I just come up with a new term?) Investors may be in the process of adjusting their expectations for what central banks in Europe, Asia and the United States are capable of achieving. Sure, central banks may try to prevent recessions; they may attempt to inflate stock prices, decrease borrowing costs and/or depreciate currencies. In the end, though, their powers may extend no further than the collective confidence of market participants.
Here’s a look at one last chart that supports the notion that the smarter money may be moving toward risk-off assets. On a month-over-month basis, the FTSE Multi-Asset Stock Hedge (MASH) Index is outperforming the S&P 500. The MASH Index is a collection of non-stock assets that tend to do well in bearish environments, including the yen, the franc, munis, long duration treasuries, inflation-protected securities, German bunds and gold.
