The bear market is not over yet

Despite a strong rally from the lows in early February, global equities remain in a Bear Market. The rally from Feb 11th has the typical characteristics of many bear market relief rallies: equities have retraced approximately 65% of their prior losses. Our medium term (1 – 2 month) trading models have swung from BUY/strong BUY back to SELL (see image). Sentiment, having been bearish in late January, is now heading back towards complacency levels (along with the VIX). Anecdotally investors and market commentators, as is typical towards the end of relief rallies, are becoming more constructive again on risk assets. Leading indicators of growth point to a continued slowing in the global economy. Whilst there has been some excitement over better than expected macro data points in recent weeks, that excitement has not translated into a steeper US yield curve (probably the best arbiter of the economic outlook). A flatter yield curve implies less global growth – and, therefore, ongoing weakness in global earnings growth.