Equities are on a winning streak not seen in the last six years. Volatility has followed suit by dropping the fastest since the tariff fits of last year. As we pointed out earlier this week, investors somewhat panicked during the month of 
March and flocked to cash and cash equivalents. This week's musings are inspired by the 1988 song "Patience" by Guns N' Roses. Here is some trivia about the song:
- The song was a major commercial and critical success. Guns N' Roses was coming off the success of their first national release "Appetite for Destruction" and made headlines by releasing a largely acoustic album in "Lies." This song, "Patience" was the only single released from the album, but both the song and the album went double-platinum, selling more than 1 million copies each. The song topped at #4 on the Billboard charts.
- The video received major play on MTV at the time and won the award for "Best Heavy Metal Video," despite the acoustic arrangement and the relatively simple music video of the band playing the song in the studio. The video played several times per day in the late '80s and the video has over 867 million views on YouTube today.
- Not only was the song a simple composition, but it's message is simple. It was written about waiting it out in a relationship.
- Slash (real name Saul Hudson) was a champion BMX rider as a kid. His iconic top hat was shoplifted from a store in LA; he added a belt to it because it didn’t fit properly. He has said the hat helps him feel less shy on stage.
- One night in the late ’80s, Axl arrived late to a show that Guns N' Roses was the opening act for Alice Cooper. The band was so new to the rock scene that security didn't recognize him and wouldn’t let him in. The band had to play the the entire concert without a singer.
"Said "Woman, take it slow and it'll work itself out fine"
All we need is just a little patience
Said "Sugar, make it slow and we'll come together fine"
All we need is just a little patience
(Patience) ooh, yeah
(Little patience, yeah, yeah)
(Need a little patience, yeah)
(Just a little patience, yeah)
(Some more patience, yeah) I've been walking the streets at night
Just trying to get it right (a little patience, yeah)
It's hard to see with so many around
You know I don't like being stuck in the crowd (could use some patience, yeah)
And the streets don't change but maybe the names
I ain't got time for the game 'cause I need you (gotta have more patience, yeah)
Yea-yeah, but I need you (all need more patience)
Oh, I need you (all need some patience)
Oh, I need you (just a little patience)
Ooh this time (is all you need)"
Here's what we've seen so far this week...
The Street Doesn't Change, Well Maybe The Names. Last week, we mentioned how investors had been flowing into money market funds and cash-like 
ETFs during the Iran conflict in moves that were more reminiscent of recessions that merely pullbacks. That has proven to be an ill-timed move as equities have recovered and volatility has plummeted. In fact, the VIX volatility index has declined 38% in the last two weeks, which is the 7th largest volatility crash in history. What typically happens next? 
The S&P 500 forward returns have been positive 1 year later 87% of the time with an average return of 17.2%. The unusual crash in volatility is not the only metric making history. The Nasdaq Composite Index has been higher for 12 consecutive trading days. This has happened only 7 other times in history. This particular move higher is the 2nd strongest in history - with a gain of more than 14% off the lows. Twelve months later the Nasdaq has positive 100% in past occurrences. Not to be outdone, the S&P 500 Index is on a streak of its own. The broad market index has gained more than 9% over the last 10 days, which has happened only 20 other times in the last 60 years. Guess what has happened 12 months later? The index was higher 85% of the time with an average return of 24.4%. Seeing a trend? When historic metrics present themselves, especially coming out of a correction or pullback, it's best to pay attention and not fight the trend.
Just Trying To Get It Right? With the historic metrics as a backdrop, what if the recovery were to fail, especially if Middle East tensions ramp back 
up? The good news is that most retail investors are still a good bit bearish, or at least cautious. Risk appetite among retail investors, as measured by flows into leveraged US equity ETFs, is at an 18-year low. Even during the 2022 bear market, US leveraged ETFs still saw inflows of $25 billion. It's likely this trend will soon reverse as investors will be getting tax refunds and volatility has dropped enough to 
entice some market entries. Regardless, the setup for more upside in equities is strong. According to the American Association of Individual Investors, more retail investors are also bearish than have been in the last 12 months. The first week in April, after 30 days of the Iranian conflict, investors reached a bearish peak of more than 51%. In addition, the AAII's survey showed that the week ending April 30th was a 1-year bearish high allocation of more than 59% in the negative market view camp. This coincides with the decline in leveraged ETF appetite that the backdrop for continued positive returns in equities remains healthy.
All We Need Is Just A Little Patience. Legacy media and market pundits did their best weeks ago to scare investors into thinking oil would hit $200/barrel and 
inflation would spike, bringing a recession with it. That narrative has turned out to be false. While inflation, as measured by the Consumer Price Index, spiked higher last month by +0.9%, the Cleveland Fed is projecting April CPI to come in only half has much. The bond market is signaling a cooling of inflation, as well. The 1-year spread between nominal Treasury Yields and real yields on Inflation-linked Treasuries has plummeted over the last week from 5.3% to 3.5%. The year-over-year CPI reading for March was +3.3%, just under the historical CPI average of 3.5%. If the 1-year breakeven is correct, we should see the April year-over-year reading at 3.5-3.6%. 
Because the conflict in the Middle East has been slowly winding down, oil has retreated from recent highs. After the start of the conflict, oil reached a 4-year high of $112/barrel. However, since tensions have eased, oil had retreated 20% back down to $93/barrel. We are likely to see the price at the pump take a much slower easing process. The average price of gas has declined from $4.17/gallon to $4.05/gallon over the last 8 days. However, a continued decline at the pump could help the May reading of inflation get back below the historical average, which could open the door for the Fed to get back to lowering interest rates. Just this week, Fed President Miran floated the idea of rate cuts this year. That would certainly be a boon for equities, as well. It's a sad state of affairs when the advice of '80s rockers of practicing a little patience should be heeded by the legacy media and market pundits instead of stoking recession fears.
Here's the famous video that received heavy rotation on MTV in the late '80s...
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