Followup: “Quick Thoughts on Markets: May 24”

Reflection on how my predictions panned out from my May 24th article:

1. Multiple expansion thru 2019; bull market to continue or trade sideways with lower earnings estimates, lower guidance. P/E forward and trailing, P/S, P/CapEx, all rising thru 2019.

Over the last two months, we’ve seen multiple expansion in the S&P 500 (SPX) and the Nasdaq Composite (NDX), but not in the Dow Jones Industrial Average (INDU) or the Russell 2000 (RTY). CapEx continues to rise across the board, signalling positive business sentiment. (Notes on the indexes in footnotes).

Table 1


2. Small cap debt expansion as small business owners feel more wealthy when tax season comes around in 2019, combined with rising defaults on personal debts.

As seen in Table 1, Capex has risen the most in small cap stocks (RTY), signalling the most enthusiasm for investment in the small cap space. Still to early to see how defaults on debt has changed. 

3. Slower housing as a result of more expensive mortgages, less refinancing; further consolidation of wealth to middle class that bought single family homes in the early 2010’s.

Too early to tell…

4. Flat real rates as inflation rises mildly along with gasoline prices this summer into higher nat gas prices into winter. More expensive imports (fiscal policy)

Import Prices have risen the last two months:


Crude Oil flat:


5. Flatting yield curve on long end, steeper on short end with the infection point decreasing signalling decreased optimism on future growth, end of existing govt bond purchases by central banks.

Mild flattening yield curve  on long end, parallel shift on the short end, meaning a flatter yield curve. inflection point around the 7 year range. We will see how this progresses. Sticking to my original predictions on the short and long ends. 


6. Emerging market yields will continue to rise to combat the rise of the dollar; currency flows important to watch to determine winners/losers in coming debt restructuring (2019-20?) Might see some runs of EM ETF’s, which cause some liquidity issues in smaller markets.

The biggest currency losers over the last three months vs the US Dollar are the:

  • Argentine Peso: -26.6%
  • Turkish Lira: -16.2%
  • Chilean Peso: -9.15%
  • Notables include:
    • Brazilian Real (-8.8%)
    • Hungarian Forint (-8.4%)
    • Polish Zloty (-6.7%)


No ETF runs that have made headlines since the VXX and XIV in Feb ’18.

7. No ETF liquidity worries, unless markets stop functioning properly for several days. No way to call another vol spike like Feb. ’18. VIX continues to stay bounded around the 12-16 range on average, gone are the single digit vol days, with less Central Bank purchasing (of course, barring a significant change in geopolitcs).

The VIX rose above 16 twice in the 2 months since my post: 

  • May 29th turned out to be a non-event after Bloomberg published the headline, “Volatility almost doubles for the quarter as concerns mount”.
  • June 25th Bloomberg also published the headline: “Stocks suffer worst day in weeks as Trump’s trade threats rattle…”. Recently, Trump has been the principle risk to the VIX.


8. Swedish market may see some M&A activity with weak krona, especially from the eurozone.

Telia Company acquires Bonnier Broadcasting

SSAB divests Ruukki Construction’s business operations in Russia

  • Note: Ruble flat relative to the SEK, business driven, not currency.

Volvo Will Move XC60 Production From China To Europe

  • Not M&A, but maybe currency driven…


  • … but maybe not:
  • Moving XC60 production back to Sweden will help Volvo avoid a 25% tariff on Chinese-built goods, though Volvo hasn’t announced if it will do the same with the Chinese-built S90 sedan. (sauce)

Multiples are such that I retract my prediction for M&A here in the Nordics. Any activity will be business driven rather than currency driven.

9. Watching cryptos for more use case adoption. Right now only diehards believe it is a store of wealth, only use case that’s fully developed is black markets.

Still watching… probably buy some more Bitcoin.


10. Big tech led markets up so it will lead markets down.

… so far so good; +8.64% over the last 2 months.


NYFANG Index includes: Facebook, Amazon, Alphabet, Apple, Baidu, Twitter, Nvidia, Netflix, Alibaba, and Tesla. Sticking to my bet: big tech goes first, then market follows.

-thanks for reading



SPX: S&P 500 Index is a cap weighted index of 500 stocks. Selection is designed to represent the performance of the broad domestic economy, representing all major industries. (BBG)

INDU: The Dow Jones Industrial Average is a price weighted average of 30 blue-chip stocks that are generally the leaders in their industry. (BBG) Note: Selection is arbitrary.

RTY: Russell 2000 is comprised of the smallest 2000 companies in the Russell 3000 index. The Russell 2000 represents approx. 8% of the total Russell 3000 total market cap. The Russell 3000 is composed of the 3000 largest us companies determined by market capitalization. (BBG)

NDX: Nasdaq 100 Stock Index is a modified cap-weighted index of the 100 largest and most active non-financial domestic and int’l equities listed on NASDAQ. (BBG)



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