Houston we have a problem…
For most of the “recovery,” the inflation trade was relatively correlated with high yield credit and stocks moving alongside economically sensitive commodities such as Oil and Copper.
This all fell apart in early 2013. From that point onwards, according to Oil, Copper, and credit, the economy flat-lined. In contrast, stocks kept chugging along, oblivious.
Today, the divergence is absolutely absurd. And stocks are on the cusp of breaking below their two-year trendline:
The failed bounce in particular is not pretty. Usually when stocks have bounced off their trendline, they rocket to new highs.
Not this time:
At the end of the day, stocks are absurdly overstretched from their bull market trendline:
The Fed had no real reason to engage in QE 3 or QE 4. All it did was push stocks into a massive bubble that could very well be bursting right now.
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Phoenix Capital Research