More warning signs

Although the equity indices are reaching new highs, there is no shortage of warning signs that investors are either not fully conscious or perhaps not paying the necessary attention: on the equity front, those new highs are mostly due to a big concentration in a few powerful stocks: Semiconductor companies amount to 12% of the total U.S. market capitalization. Insiders, typically the members of the C-suite that have access to the details of their companies earnings, are selling, and they have been doing so for at least six months, as you can see in the chart below, which is often a signal they don’t see a bright future for their companies ahead. In the Fixed income side and particularly in the Treasury market, liquidity is worsening, measured by the bid ask spread for treasury bonds, currently above the GFC and COVID peaks. It is important to put this in the context of bigger financing needs for the country that, due to the budget deficit, needs to issue at least 2 more trillions of debt and needs to rollover 9 trillion more that matures in less than 12 months. And yet, despite those negative signs, the market keeps advancing. What will it take to stop this train?

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