All of the above data points are rear view mirror looking. On a going forward basis what might impact the direction of the market?
- investors still have large amounts of cash on the sidelines. A large number of these investors will use the pullback to add to equities. The market decline has resulted in investor's equity allocation to fall below target levels; consequently, this pullback could be short lived and a more significant contraction could occur in mid to late summer after the cash has been pulled off the sideline.
- On a longer term basis, the yield curve suggests positive market returns ahead. I have written several earlier posts on the predictive power of the yield curve. Today, a post appeared at Crossing Wall Street that discussed market returns and the shape of the yield curve. Embedded in the post was a link to a Bloomberg article written by Caroline Baum (Dr. Yield Curve) titled Curve Watching Beats Room Full of Forecasters. It is an interesting article and I suppose, using the new terminology, could be called a green shoot.