The Market Can Only Ignore Fundamentals For So Long

Tyler Durden's picture

While it is somewhat broadly understood that the 'market' is disconnected from 'fundamentals' currently - apparently on the basis of forward hope and central bank liquidity - we thought the following charts would be worthwhile paying attention to in an effort to shake off the anchoring biases that so strongly hold us as our nominally-priced markets break to new highs. Again and again over the past six years we have seen stocks ignore (just a blip) significant trend changes in macro data, only to revert aggressively back to reality soon after. Whether compared with pure 'macro' data or the liquidity-fueled fed balance-sheet driver, reversions come - especially when the market least expects them (and is most aggressively positioned). Presented with little comment...

 

Judging by past performances of the market relative to US macro data, there is a lag before the drop (or rise) in macro is recognized as a trend rather than a blip...

In 2007, Macro data turned down as stocks soared after initial concerns were ignored over subprime - only to crash back to reality soon after...

 

As the market cratered in last 2008 / early 2009, so US Macro data had already started to outperform and sure enough, soon after, stocks began to bottom and rally...

 

In 2010 the market remained ever hopeful that all was well even as US Macro data took a dramatic turn for the worse...

And once again as US Macro data turned down in the first quarter of 2012 so stocks kept elevating on hope that Europe was fixed (or whatever it was at the time), only to correct soon after...

 

And now, we see an even more aggressive divergence - with US Macro data on the cusp of turning negative as stocks reach new multi-year highs...

 

...and perhaps the reason why we have remained disconnected for so long this time is the discounting of the Fed's expansion (flow) this year. It would appear that the 'market' has discounted at least 80% of that flow already - and judging by previous moves, there will be a 'correction' soon enough...

 

especially as macro indices are once again showing their cyclical downturn - as evidenced by Goldman's real-time macro index and its deja deja deja vu like nature...

 

especially given the market's excessively long positioning...

 

Charts: Bloomberg and Goldman Sachs