SPX: Dip Buyers Beware

May 17, 2022 2:14 PM ETS&P 500 Futures (SPX)21 Comments
Stuart Allsopp profile picture
Stuart Allsopp
4.68K Followers

Summary

  • The risk-reward outlook is negative, from both a short and long-term perspective.
  • While survey sentiment is deeply negative and the VIX is elevated, we are nowhere near the levels that imply capitulation.
  • Price/earnings ratios drastically understate the true level of market valuation, which is consistent with negative returns for years to come.
  • High inflation has called into question the Fed put, and even a reversal in monetary policy would unlikely provide much help to the SPX.

Bear figurine on descending line graph and list of share prices

Adam Gault/OJO Images via Getty Images

The end of selling pressure in the SPX over the past few days has led some analysts to believe the market is attractive here. They point to reasonably prices valuations, oversold conditions, and widespread bearish sentiment. However, I

Bull/bear ratio

Yaredni.com

SPX vs VIX

SPx Vs VIX (Bloomberg)

SPX valuations vs subsequent returns

SPX Valuations Vs Subsequent Returns (Bloomberg, Author's calculations)

SPX vs fed funds rate

SPX Vs Fed Funds Rate (Bloomberg)

This article was written by

Stuart Allsopp profile picture
4.68K Followers
I am a full-time investor and owner of Icon Economics - a macro research company focussed on providing contrarian investment ideas across FX, Equities, and Fixed Income based on Austrian economic theory. Formerly Head of Financial Markets at Fitch Solutions, I have 15 years of experience investing and analysing Asian and Global markets.

Disclosure: I/we have a beneficial short position in the shares of SPX either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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