The 2016 bottom: structure turned before mood — and long before rates

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The extreme

In March 2016, the market's relative prices flipped sign while the news flow was still grim. The financial sector, written off for months, jumped nearly two standard deviations in a single month; commodities in real, which had led, lost the front. It was the structure recomposing underneath, without fanfare. In numbers: Financials/IBOV from -1.65 to +0.18 in deviation, the intermarket from 22.4 to 43.3 (third month of improvement) and the dollar easing to R$ 3.70.

What happened next

The recovery was real, but uneven. In June 2016 mood shot ahead of prices: the Ânima nailed 89.7 (extreme optimism) and the Perene Risk Index went to 100, while the intermarket structure barely moved (34.8, still in moderate aversion). In September the enthusiasm pulled back without warning — the Perene Risk Index collapsed from 44.5 to zero. And only in March 2017, twelve months later, did the flow structure cross firmly into strong risk-on (70.6), with the Selic finally being cut, from 14.25% to 12.25%.

What didn't happen

There was no clean climb. Anyone reading the March turn as "now it's only uphill" would have faced a year of back-and-forth: mood overheated in June, the quantitative reading went to zero in September, and mood and structure spent months telling different stories. Rate relief, then, took a full year to arrive.

Honest verdict

The recomposition began with the structure of relative prices — months before mood confirmed and well before rates gave way. Whoever watches only sentiment arrives late; whoever watches only rates arrives later.

Continue the story: Who bought while mood screamed · Structure leads mood · What the Ânima Index is →

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Characters: Structure (intermarket) · Mood · Flow (risk appetite) · Rates (Selic) · Cyclicals × defensives · Commodities