In fairness a downturn is always coming. But we are pretty deep into the cycle at this point and debt levels are rising. (Particularly household debt.)
Will we see a 50% crash in equities like some think is possible? Let’s hope not. We don’t need any more drama at the moment.
(From Bloomberg)
Just like they did in the run-up to the 2007 crisis, investors are pricing assets based on the risks specific to an individual security and industry, and shrugging off broader drivers, such as the latest release of manufacturing data, the model shows. As traders look for excuses to stay bullish, traditional relationships within and between asset classes tend to break down.
“These low macro and micro correlations confirm the idea that we’re in a late-cycle environment, and it’s no accident that the last time we saw readings this low was 2005-07,” Sheets wrote. He recommends boosting allocations to U.S. stocks while reducing holdings of corporate debt, where consumer consumption and energy is more heavily represented.
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