S&P 500 Banks index: after recovering from the early March lows, the sector is posing. Since the last review the main event was the results of the stress test passed by the 19 banks too big to fail, test results leaked and managed by the authorities so they appear better than expected. Whilst consolidating, still positive.
Global 1200 financial index: European banks (which ones?) will also get their stress test which will not be made public. As usual,
TED spread (LIBOR USD 3 mth - US 3 mth T-bills): Since our last analysis, they have continued to contract rather quickly, going through the June 2007 and May 2008 level. They are now closing on 2006 high. Positive.
USD bank BBB 10 yr - US 10 yr yield: Not much change. Still much too high and not fully convincing. Slightly positive.
OEX volatility: OEX volatility has decreased further and is entering the testing zone of July2007-July2008 levels; it has to decisively break these peaks. Still positive.
S&P Case Shiller house price index: No new data (due late May). However foreclosures are not abating; the real estate market is still distressed whilst confidence among U.S. homebuilders in May increased to the highest level since September. Not bottomed yet hence still negative.
Oil price: Oil prices touched $60/b in May before slightly retreating. As soon as the economy shows signs of moving again, oil price will zoom up but still positive.
Conclusion: As a whole, the fundamentals still look promising but equity markets not crying buys, particularly with the strong stock market rebound we have witnessed since early March. The S&P 500 is now hovering around 900 and has not breached the January high as yet. It is time to reflect, become more cautious, take some profits off the table and think about the next move.
I will review this in a series of articles together with thematic investments.
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