Evolution 4.0 | Macro US Equities Market Analysis October 2015

Evolution 4.0 Macro Analysis DIJA | Market Resiliancy

Evolution 4.0 Macro Analysis DIJA | Market Resiliency

In doing some analysis of US domestic equity markets at the macro level, Evolution 4.0 discovered some interesting data that does a great job of illustrating how resilient US equity markets have become. Additionally, Evolution 4.0 has done a masterful job of showing just how sustained the “recovery” of US domestic equity markets has been since the lows of 2010. How sustained? From 2009 to present, a near 25 year over year increase in the DIJA for six years straight now.

More importantly, the “speed bumps” along the way have become fewer and further between. For instance, the “flash crash” event of 2010 showed a decline to recovery (previous levels) of a little over 9.5 months. That is to say that the “shock waves” from the flash crash event created something of a small correction. In 2011 the combination of US S&P credit downgrade and Greek Exit (grexit) turmoil created a significant downward move in all equity markets. Interestingly, the time period it took to recover back to previous levels was only 6.5 months. Evolution 4.0 indicates that a combination of additional systemic liquidity as well as the “speed of information and transaction” to be partially responsible for the shortened recovery time.

The recent “correction” (in progress) that was the product of the wide swings in petroleum valuation, Chinese overall market stability fears, and some earnings downgrades seems to be following a pattern of approximately a 3.5 month recovery back to previous levels. Theoretically such a recovery should be about the same as the previous 6.5 month correction/recovery cycle, and experts on staff are amazed at the resiliency that the market has shown thus far. Evolution 4.0 however has seen some signs that such a 3.5 month recovery to previous levels is entirely possible. The important question raised however is “why”? Based upon Evolution 4.0 research, additional liquidity in the form of US dollars (and US dollar denominated securities), increased corporate spending, and the fact that cash on the books of corporations is at an all time high. We also keep in mind companies are still “streamlined” from the 2008-2009 lows and are doing far more with far fewer employees.

Something else to consider are the symptoms of inflation and hyperinflation. While yes the shortened period of time between recoveries is the product of the “speed of business”, liquidity is still required to make such recoveries. Therefore, despite FOMC lip-service about there being “no immediate signs of inflation at all”, evidence to the contrary can be seen in the above chart.

Another important question to ask is: “what is the current recovery based on?”. In doing additional research at the macro level, in the December edition of WireHaus, we look at what a purely currency / inflation based economic recovery looks like metric by metric. Also based upon our research is the fact that we are seeing resiliency and levels prior to any “real” US dollar and currency inflation. Those that have studied history will know that one of the byproducts of inflation (leading to hyperinflation) is dramatic increases in liquidity / volume / levels of various asset classes and investments (equities).

For those looking to make short term ETF/options plays on current market conditions, stay tuned. We will be performing additional research on the current levels of all three major indexes (Dow/S&P/NASDAQ).