The notion that investors may still be spooked can be found outside of the bond arena as well. For instance, when the investment community is adding to its collective risk profile, high beta stocks in the PowerShares S&P 500 High Beta Portfolio (SPHB) tend to outperform less volatile stocks in the iShares USA Minimum Volatility Fund (USMV). This can be seen in the rising SPHB:USMV price ratio up through May of 2015. Unfortunately, the price ratio begin to decline in earnest during the summer. It hit new lows in August and September respectively. And while SPHB:USMV bounced off the September lows, the ratio is struggling to reaffirm a genuine uptrend.
Even the NASDAQ’s Advance-Decline Line (A/D) is sending mixed messages. One would think that if risk were truly back in vogue, advancing issues in the stock benchmark (NASDAQ) would be pummeling the decliners. That’s not happening… at least not yet. In other words, broader market participation in the October rally is spotty at best.
It is certainly possible that the worst for 2015 resides in the rear-view mirror. After all, the Federal Reserve’s inability to raise borrowing costs has sparked intrigue with respect to a “re-reflation” of asset prices in our muddle-through economy. On the flip side, with earnings as well as revenue both expected to decline for a second consecutive quarter (a.k.a. “earnings recession” and “sales recession”), some of that reflation may be kept in check. It’s one thing to consider the possibility that we’ve already seen the depths for 2015. It’s another thing to suggest that we will be heading for new heights anytime soon.