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Rare S&P 500 Surge at Record Highs, ECB and US Wealth Update on Tap

Rare S&P 500 Surge at Record Highs, ECB and US Wealth Update on Tap

John Kicklighter, Chief Strategist

Talking Points:

  • An advance to record highs from the S&P 500 is not unusual, but the scale of Tuesday's surge at highs is remarkable
  • USD/JPY, the Yen crosses and carry trade continue to fall behind the global reach for yield in risk assets
  • Top event risk Thursday is the ECB rate decision, but mind the US 3Q household wealth, Japanese sentiment and more

Sign up for the ECB live webinar and see what live coverage is scheduled to cover key event risk for the FX and capital markets on the DailyFX Webinar Calendar.

There are heavy fundamental seas ahead and investors are taking stock of the uncertainty it represents for their positions. With the ECB rate decision on tap today and the Fed meeting looming next week, there are prominent curbs on conviction; but that doesn't mean the market is dead. This past session, the markets rippled with a strong risk-oriented move. Speculative reach is not unusual nowadays, but the amplitude behind the US-based S&P 500's surge - already at record highs - is remarkable under any condition. Global shares, emerging markets and other high-risk assets followed in suit indicating a systemic sentiment boost.

December is historically a positive month for capital markets with a slide in both volatility and volume. Yet, already stretched risk conditions and the backdrop of value continues to highlight the glaring disparity between price and value. Markets are founded on the collective irrationality of the crowd, so fighting the prevailing trend as some sort of statement on what is appropriate is quixotic. That said, it doesn't pay to just conform as the potential for follow through is unappealingly low. Shorter-term trades (both in time and target) with smaller exposure are more appropriate in these circumstances.

As we accelerate into the backend of the week, the risk winds should be the first concern as they are drawing heavy contrast to the underlying economic reality and are systemic for influence. However, it would be a foolish to ignore the scheduled event risk dead ahead. The European Central Bank (ECB) rate decision today is arguably this week's top listing for potential impact. After the 'No' vote on the Italian Referendum over the weekend, speculation was recalibrated to assume a on-change outcome. However, there is a clear limitation in assets the ECB can purchase and the effectiveness of the group's program has already come under deserved scrutiny. Along with the US 3Q household net wealth, Japanese sentiment surveys and final day of the UK Supreme Court hearing on the appeal for Parliament's say on the Article 50; there is a lot to brace for. We discuss all this event risk and weigh it against reasonable opportunity in today's Trading Video.

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