After the market correction in Spring 2012, the classic risk-on sectors (Financials, Technology, Telecom and Energy) have been on a tear, as shown in the chart below:
Financials, Technology, Telecom and Energy stocks have risen 12.5%-18.5% in the past 3 months. The remaining sectors shown below have risen 7%-11%, except for poor lowly utilities, which are largely unchanged.
Can Bernanke pull the proverbial rabbit out of his hat and keep markets levitated above the economic fray? Tom Keene of Business Insider recently taunted economic forecaster Lackshman Acuthan to “Come Back When There’s a Recession,” but I’d say it’s Keene’s voice that sounded a little shrill to me. While the “big four” economic indicators continue rising in the US:
Purchasing Managers’ Indices around the world, and now the Empire Manufacturing Index in the US, are flashing a much different signal:
Additionally, the Baltic Dry Index collapsed in February and has yet to be resuscitated:
I consider it inarguable at this point that much of the world is in a coordinated global recession. Of course, there is no law of physics that requires equities to discount economic conditions. Traders can set their bid and ask prices on any criteria they like, so it remains possible that they will continue to value free speculative capital more than economic reality. But if they do, it’s just going to make the inevitable correction a lot more . . . interesting. As long as I’ve been keeping track, “This time it’s different” has never been the last word in markets.