Tyler Kling writes…..
Credit spreads have narrowed significantly since the beginning of the year. Check out the graph below via Citi Bank.
Credit spreads and stocks move together because all market moves are governed by liquidity conditions. When liquidity conditions tighten (credit spreads widen) the cost of capital goes up, and therefore the returns investors receive in equities relative to other assets looks less attractive.
It’s important to stay in tune with liquidity conditions because that’s how you give yourself a chance to actually time the market. Stanley Druckenmiller earned his breathtaking track record by paying close attention to liquidity in the financial system. (Quote below)
I never use valuation to time the market. I use liquidity considerations and technical analysis for timing. Valuation only tells me how far the market can go once a catalyst enters the picture to change the market direction.
Read More
https://macro-ops.com/bear-markets-and-liquidity-conditions/