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Exuberance and Gloom - Q1 2018

Exuberance and Gloom is a global financial markets analysis made by Stephen Rufino Ph.D, CIIA, Galeo's financial analyst.

 After a strong 2017, investors lost their resolve in early February. Spooked by fears of higher inflation, fed rate hikes and trade wars they dumped their equity holdings resulting in a roller-coaster ride for US equity markets with the SP500 experiencing a 10% intra-quarter drawdown.

 In the first quarter, with the SP500 up a paltry 0.2% and 10-year historical earnings rising, equity valuations were down and sentiment retreated from exuberant levels. The market turmoil drove implied volatility up to 33.5 at close of February 8th to finish the quarter at 20, resulting in sentiment swinging from exuberant to gloomy and back up to average levels. Credit spreads widening marginally pushing sentiment down towards its historical average. US sovereign short and long-term rates rose in parallel leaving the curve’s slope unchanged and bond sentiment slightly above its historical average.

 In the corporate arena, initial claims decreased maintaining employment sentiment in the exuberance zone. Earnings edge slightly higher but not sufficiently to keep sentiment rising.

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 Exuberance and Gloom - Q1 2018