A warning sign...
Global equity markets are no longer being driven by macro fundamentals. Other variables – such as regulation, sentiment, positioning – have become more important.
These drivers can be more volatile in this new environment. New regulations may arrive unanticipated; positioning & sentiment are prone to wild swings. When macro fundamentals cannot explain price action, markets are at the mercy of more short-term factors. These can work as both tailwinds or headwinds but they do imply greater volatility.
The macro confidence of our models across global equity benchmark indices have been trending sideways at high levels – meaning that the majority were in strong, stable macro regimes for around 18 months. However, in the last two weeks, the influence of macroeconomic factors on the S&P500 has been declining, with model confidence falling 28%, now sitting at just 16%. Again, Other variables including regulation, sentiment and positioning are increasingly more important in this term.
The same phenomenon has occurred in Europe (Stoxx 600 confidence down 23% in the last 2 weeks to 53%) &, to a lesser extent, Asia. In Japan, the Nikkei 225 model confidence has fallen 13% to 77%. The Kospi is notable – it was one of the first to see model confidence fall but has subsequently entered a new macro regime. One where FX shifts are critical.
The two outliers are the Shanghai Composite & the NASDAQ. Both fell out of their macro regimes earlier - around the end of the first quarter - & model confidence remains low.
Regime shifts are natural & macro fundamentals will reassert themselves. The emergence of new regimes & the drivers that lead them can be tracked in real-time on Qi. In the meantime, caution is warranted & managing your risk becomes all the more important.
These drivers can be more volatile in this new environment. New regulations may arrive unanticipated; positioning & sentiment are prone to wild swings. When macro fundamentals cannot explain price action, markets are at the mercy of more short-term factors. These can work as both tailwinds or headwinds but they do imply greater volatility.
The macro confidence of our models across global equity benchmark indices have been trending sideways at high levels – meaning that the majority were in strong, stable macro regimes for around 18 months. However, in the last two weeks, the influence of macroeconomic factors on the S&P500 has been declining, with model confidence falling 28%, now sitting at just 16%. Again, Other variables including regulation, sentiment and positioning are increasingly more important in this term.
The same phenomenon has occurred in Europe (Stoxx 600 confidence down 23% in the last 2 weeks to 53%) &, to a lesser extent, Asia. In Japan, the Nikkei 225 model confidence has fallen 13% to 77%. The Kospi is notable – it was one of the first to see model confidence fall but has subsequently entered a new macro regime. One where FX shifts are critical.
The two outliers are the Shanghai Composite & the NASDAQ. Both fell out of their macro regimes earlier - around the end of the first quarter - & model confidence remains low.
Regime shifts are natural & macro fundamentals will reassert themselves. The emergence of new regimes & the drivers that lead them can be tracked in real-time on Qi. In the meantime, caution is warranted & managing your risk becomes all the more important.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.