Seeing This Bull Market Extending into 2020, Not ‘Melting-up’


Analysts at Bank of America Merrill Lynch, described this Bull market as “primed for Q-1 2020 risk asset melt-up,” with the Fed and the ECB still providing ample support to portions of the market and economy that have shown some signs of softness aka printing money.

UBS Global Wealth Management’s Chief Investment Officer said that the P-1 China-American trade resolution contributes mightily to the Bullish thesis that a number of strategists have adopted. “This could unlock further upside for equity markets, driven by an improvement in business confidence and a recovery in investment,” he wrote.

It is important to note that the a melt-up is considered by market pundits as the end phase of an asset bubble and is usually, but not always, followed by a significant downturn in stock values.

We do not see the Bull market’s extension as a melt-up

Big bank strategists have predicted melt-ups a number of times over the past 18 months, with concerns growing about US economic growth in its record-setting 11th year of expansion, supporting fears that an economic and stock-market pullback are inevitable. Note, pullbacks are healthy.

A call by some market participants for further gains for equity indexes now comes as the S&P 500 has gained 27.3% YTD, the DJIA has returned 21% so far this year and the NAS Comp has produced a YTD return so far of 32.8%, according to FactSet data.

The strong market performance translated into outsize gains for the small-capitalization Russell 2000 index (RUTX) which is on track for a 22.4% gainer, its best annual return, if it holds, since Y 2013, when it gained 37%.

A Key measure of risk for future downturns, the Cboe Volatility Index (VIX) is on track for a 54% declineer this year, which would mark fear gauges’ worst yearly fall on record. The index tracks Bullish and Bearish options on the S&P 500 for the coming 30-day frame and has tumbled below a reading of 12, well below its historical average of about 19. The index tends to rise when stocks fall and vice versa.

Stay tuned…