19.02.25 - Flashing red lights

Pure euphoria drives indicators to new all-time highs and in the meanwhile to some flashing red lights. Some of the indicators are:
- technically overbought levels in Europe.
- According to latest report from Bank of America, cash levels of global fund managers are at 15-year lows, down to 3.5% which usually indicates a good sell signal.
- Leveraged ETFs have USD 104 billion assets under management, the highest level ever.
- Insider transactions show higher number of selling deals, means the manager are reducing their stock exposure.
- Bloomberg stock sentiment index shows ‘manic level’
- US private households, 3 out of 5 expect higher stock prices within the next 12 months, while only 20% expect higher income in the next 12 months, highest level since the survey was initiated back in 1987
- volatility on equity and bond side are on low levels despite high number of uncertainties
- Credit spreads reached a very low level: in the US, the premium for corporate bonds payed over US Treasuries are around the lowest level since 1998.
- Exceptional single stock moves: e.g. Meta stock had 20-day winning streak

Markets: seem to be losing some steam with momentum fading.

My View: Market patterns definitely demonstrate pure euphoria with bad news and uncertainties largely ignored.
From an economic standpoint, inflation remains elevated, suggesting that interest rate cuts will come at a slower pace than previously anticipated. Consumer spending is weakening, as seen in January’s retail sales figures, and leading indicators show no signs of a rapid recovery.
On the geopolitical front, a swift resolution to the war in Ukraine seems unlikely, and peace talks may take longer than the market currently expects. Additionally, the threat of further tariffs looms, which could weigh on economies. As long as these uncertainties persist, corporations are likely to hold off on major investments.

How long market euphoria will last is always difficult to predict. It largely depends on the liquidity available and how much capital can still be funneled into the market. As long as excess money continues to flow in, the rally may persist—but once liquidity dries up, sentiment can shift quickly.
While I do not foresee a major market crash, as there are no signs of a deep recession yet, a pullback could happen at any time.

To manage my portfolio and lock in some of the recent gains, I have set stop levels on some positions to secure profits if the market turns negative and increased my short positions, which reduces my overall net equity and risk exposure.

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