Expectations are too negative.

Chart of the week

The chart shows the annual change in the broad stock index in the USA, the S&P 500, and the purchasing managers' index. The purchasing managers' index is considered one of the most reliable leading indicators of economic development.
Why it matters
The chart impressively shows that the general market is anticipating a negative trend, which is far too negative. The same thing happened after the dotcom bubble burst in 2000 as well as after the financial crisis in 2008. In both cases it was worthwhile for investors to invest (more) at that time. The market is expecting such strong negative developments that it takes little to surprise investors in a positive way.

The concerns of many analysts and investors are not unfounded. We will address these as well in the remainder of this market report. There will be repeated phases of falling markets in the coming months. In the long term, investors who did not allow themselves to be led by the negative sentiment in such phases were among the winners.
Successful start to the new investment year 2023

The chart shows the return since the beginning of the year in different asset classes, sectors and themes. Most markets started the new year on a very positive note. The S&P 500 was able to gain 6%. However, the focus has not been on those asset classes that were widely expected.
So far, the majority of the rebound has been in everything that lost the most in 2022. At the top of the return leaderboard with nearly 40% is Bitcoin, which was thought to be dead. It is closely followed by the growth stocks (Growth).

The chart shows the development of inflation to date (solid line) and expected figures (dotted line).

A major contributor to the positive developments on the markets was the fact that inflation in the USA continued to fall as expected. It is now only slightly above 6%. This is also accompanied by the assumptions that the U.S. Federal Reserve will raise interest rates next week only moderately by 0.25% and the interest rate increase cycle will end soon.

The chart shows an index calculated by Goldman Sachs that shows how easy it is for companies to refinance compared with the last three months. Interest rates are still high, of course, but the situation on the interest rate front has eased somewhat. This has contributed to the rally in growth stocks, as the majority of them are funded with debt.

Euphoric investment sentiment
Regular readers of the Market Report already know this. We prefer to invest when the investment sentiment is negative rather than when it is overly positive.

The chart shows the "fear and greed" indicator from CNN Money. When the investment sentiment is too positive and on "greed", there is usually a correction, because everyone is already invested and there are not enough buyers to drive the market further up.

The rise of early-year has led to a rapid change in sentiment. Within one month the indicator has turned from "fear" to "greed". In the lower part of the chart you can see the development since one year. We have climbed to a new high there. We would therefore not be surprised if the rapid upward movement were to falter somewhat.

The chart shows the so-called insider indicator. In the USA, all managers who are in a high position in a publicly traded company must report all their purchases and sales of shares in the company in which they work. These investors are called "insiders" because they have more information about the company than any other investor.
Currently, more insiders sell shares in their company than usual. This is usually the case when the insiders consider the valuation of their company to be overvalued. It is then also an indicator that currently calls for caution.
Has the recession already started?
Many expect a recession to start in the spring. However, looking at the data, there is a suspicion that the recession has already begun in the USA.

The chart shows retail sales in the US since 2020, which have already been negative for the last two months.

The chart shows retail sales in the individual sectors. Apart from 2-3 sectors, which were unchanged, there have already been major losses in all other sectors. Spending on electronics and department stores is particularly noticeable here. This is a clear sign that consumers are curbing their spending. Given the many negative reports, this is not surprising.

The chart shows all layoffs in the technology industry since January 2022. Just last November and now in January, many well-known technology companies were notable for massive layoffs.

The chart shows which of the major technology companies have announced major layoffs in recent months. This is weighing heavily on investment sentiment.

The chart shows a leading indicator developed by the investment bank Morgan Stanley (orange line). It has a surprisingly good correlation with earnings growth in the USA (blue line). This gives a taste of what could be in store.
All readers who are now afraid and want to sell, I recommend to read the beginning of the market report again.