The chart that spells out the danger of an ‘all-in’ stock market

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The S&P 500 is closing in on another record, but there are some clouds creeping over this market.

Among the worries: the ongoing U.S.-China trade spat and concerns about global growth, with the IMF the latest to warn that a slowdown is coming. Italy is once again upsetting investors this morning, with budget problems and some wild talk about bringing back the lira.

Some investors can’t shake the unease that comes with an “all-in” market. That is the gist of our chart of the day from Callum Thomas, founder of research firm Topdown Charts, which shows stock-loving investors have dropped their allocations to cash to “rock-bottom” levels:



He prefaced that with another chart that shows how the money keeps flowing into U.S.-equity exchange-traded funds:



Thomas says “it would be without recent historical precedent that cash allocations would drop further than where they are now,” he said.

“Basically where cash allocations are at this point is entirely consistent with the type of signs you see toward the end of a market cycle,” said Thomas. “Long story short, U.S. investors are basically all-in. Good luck to them.”

His chart got a mention by blogger Gary at Notes from the Rabbit Hole, who says there is all manner of risky business going on right now, from a pot-stock bubbles to floating Hindenburgs to investors being whipped into a frenzy over stocks like Tesla.

“It is really important that rational players know how to separate two things…risk & price, which can coexist indefinitely as they rise together. Until one day, they don’t,” says Rabbit Hole’s Gary.

Opinion: Stock investors can no longer ignore the next bear market

The market

Dow














YMZ8, -0.18%












S&P 500














ESZ8, -0.11%












 and Nasdaq














NQZ8, -0.24%












 futures are fairly stuck in the red. That is after the S&P














SPX, +0.36%












Dow














DJIA, +0.73%












 and Nasdaq














COMP, -0.11%












started the week on a higher note.

Gold














US:GCU8












is up a bit while crude














US:CLU8












is holding around four-year highs and the dollar














DXY, +0.23%












is well up, notably against the euro














EURUSD, -0.3455%












 and pound














GBPUSD, -0.5291%











That tough day extends to Europe














SXXP, -0.56%












where Italian stocks














I945, -0.21%












 are leading the way on budget worries out of that country. And there was lots of red ink in Asia, led by the Hang














HSI, -2.38%












which slumped 2.4%.

The call

As oil prices hovered or clung to four-year highs early Tuesday, some out there are getting nervous. Our call of the day, from analysts at JBC Energy, say they “can’t shake the feeling that this bull bet is a dangerous one.”

A rally for crude over the past few months has been fueled by declining Iranian crude exports ahead of U.S. economic sanctions against Iran’s oil industry, due to kick in Nov. 4. And there is a “general impression” out there that major oil producers either can’t or won’t make up expected falls in Iran exports, said JBC analysts.

What they think is happening is a “better-safe-than-sorry” kind of rally, with “people buying and stocking crude before the presumed shortness in the balance emerges as of November.” Added to that are signs of weakness in global refining margins and storage indicators that show no signs of strong draws.

“With prices rallying to new highs, the demand side of the equation cannot be improving, and if a combination of that and some type of positive surprise on the supply side emerge over November and December, we would be looking a rather hefty bull trap,” they warned, adding that the market is more than likely at its “peak impact” of Iran sanctions.

The buzz

Amazon














AMZN, +0.07%












 is raising its minimum wage to $15 for U.S. employees—full-time, part-time, seasonal and temporary. CEO Jeff Bezos said the company decided it wants to be a leader, with the e-commerce giant’s public policy team set to advocate for higher federal minimum wage to go up.

Meanwhile the American Apparel & Footwear Association wants some Amazon sites added to its “Notorious Markets” list of companies that make it too easy for counterfeit goods to circulate.

We’ll hear from Fed Chairman Jerome Powell in a speech at the National Association for Business Economics conference in Boston at noon eastern. Speeches from vice chair for supervision Randal Quarles and Dallas Fed President Rob Kaplan and auto sales are coming as well.

Trade jitters may not be too far away. The Trump administration reportedly believes with a Nafta deal all but done, it may have the upper hand on the still-unresolved China dispute.

Fresh Italy jitters are down to this: The head of the European Commission, Jean-Claude Juncker warned Italian Finance Minister Giovanni Tria on Monday that the country’s budget proposal isn’t only severely lacking, but it could spark a Greek-style crisis.

Papa John’s














PZZA, -3.92%












 is up on news activist investor Legion Partners has been building a stake in the pizza shop.

Coming apart at the seams? Stitch Fix














SFIX, +1.96%












 is down after missing estimates for active clients. Elsewhere there were signs of improving attendance for SeaWorld














SEAS, -4.55%












 

Don’t miss: MarketWatch Special Report: The best new ideas in money

The quote
AFP/Getty Images


IMF’s chief Christine Lagarde is a little less upbeat these days

“A year ago, I said, ‘the sun is shining—fix the roof.’ Six months ago, I pointed to clouds of risk on the horizon. Today, some of those risks have begun to materialize.”—That was Christine Lagarde, the managing director of the International Monetary Fund, who warned that the group will release some less upbeat global outlooks next week. Trade wars are just part of the problem, she said.

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2018-10-02 04:24:00

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