Market Euphoria Cooling, Earnings Positive: CITI’S PULSE Monitor


The PULSE Monitor, an ear to the ground in the market, by Citi analysts Tobias Levkovich, Lorraine Schmitt and Christina Wood, says Price (‘P’) and Earnings (‘E’) continue to rule in positive territory while Sentiment (‘S’) has retreated from euphoric levels to neutral.

Structurally, therefore, the market is in better shape than the previous week, with none of the P-U-L-S-E indicators in Negative territory, as shown below:

Euphoria model downshifted

Citi’s proprietary Panic/Euphoria model downshifted out of the euphoria area into the neutral zone, as shown by the chart below. Compared to last week’s reading of 0.47, the model read 0.42 for this week. Given that euphoric readings presage an 83% chance that the market could retreat with losses within the next 12 months, the neutral reading offers some comfort.

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The Cyclical Expectations Model echoed the move by declining again this week.

3-CEM euphoria

Price metrics

Citi’s valuation models based on earnings yield gap analysis indicate that equity valuations are either modestly overvalued, or about fairly valued.

Earnings revisions

“Upward revisions as a % of total revisions for the S&P 500 (INDEXSP:.INX) were up thus far in February from January, with two sectors showing revisions to the upside,” observe the analysts, referring to Consumer Discretionary and Materials.

The Consumer Discretionary sector saw 45.3% monthly upward revisions as a percentage of total monthly revisions in February compared to 23.28% in January. For Materials the February figure was 41.79% versus 36.19%.

Liquidity: Equity funds still gainers

During the latest week, investors ploughed $3.45B into foreign funds but withdrew $1.56B from domestic funds, leading to a net positive add of $1.89B into equities.

Bond funds continued to see outflows and saw withdrawals of $2.86B.