No sign that the moment of maximum investor pessimism has been breach. No Fed change of heart on monetary policy. No surge in the Chicago options volatility index. No clear sign of sector leadership from technology or financials. Yet there are bullish indicators brewing on the horizon, even though the stock market is oblivious to them now.
Earnings growth is still strong.
Cash is building up in institutional portfolio. We are near the peak of the Fed tightening cycle as the impact of six successive interest rate hikes hits economic growth. Looking at the macroeconomic tea leaves, it is quite probable that June could mark the last rate hike of this cycle. The mini-crash in US equities since April cannot thus but have pleased the inflation hawks on the FOMC, as well as the decline in crude oil prices and the strong dollar. While the overall markets remain sluggish, the sell off in telecom stocks worldwide has created opportunities for global telecom network operators such as Deutsche Telekom, France Telecom or BT to engineer takeovers of emerging next generation carriers at far more attractive valuations.