This Morning's Log Entry: In No Mood to Rally -- And, Alas!, THE Existential Economic/Market Risk

The Dow future contract was up 100 points in the premarket on McDonald’s earnings beat, however, since the open it’s been vacillating around the flat line. GE also just posted an earnings beat, and while MCD has already come back down to earth, GE is still up 7% as I type.

Google missed its number after the close yesterday, which is weighing heavy on the stock this morning, Apple reports after the close tonight.

The price action this morning is consistent with my immediate-term (always subject to change) assessment that the broad market is in no mood to rally hard amid geopolitics, and amid what I see as a dangerous (in terms of the potential to spark some near-term downward volatility) degree of complacency signaled by the present positioning among VIX futures traders, a low level of SPY short interest, optimism among advisors, lack of pessimism among individual investors, and so on.

Tomorrow’s Fed meeting could be a real needle-mover. If they’re concerned with roiling the stock market they’ll have to carefully toe the dovish line they established at the last meeting. If recent decent data has them sounding the least bit hawkish, the market will welcome it in cold fashion. This morning’s release of the Employment Cost Index came in at the low-end of YoY estimates, but, still, 2.8% is (should be!) sufficiently inflationary to silence any of the ludicrous calls of late for the Fed to cut rates. Consumer confidence, just released, came in at the high-end, and pending home sales, just released, blew away expectations. Again, it is utterly silly (potentially dangerous on many fronts [political, etc.]) to be calling for a Fed rate cut under present conditions.

Speaking of politics, Bernie Sanders was going hard at China yesterday, promising to essentially double down on the damage done over the past year+.

Ironically, last August I wrote:

“…this China fear mongering has proven to be politically expedient in the past. In fact I recall Obama going there big time as well. You certainly heard a ton of it during the last campaign, equally from both sides of the aisle (there was virtually no distinguishing Sanders form Trump on the topic of trade). It's just that President Trump is now taking it to a whole new level.”

Unfortunately, and dangerously, Trump seems to view protectionism (as has the left traditionally) as a political winner. As I’ve been preaching on the blog since the get-go, if he stays there -- given that it turned out to be much more for him than simply campaign posturing -- he’ll soon learn otherwise; as I see no way general conditions can hold up between now and November 2020 against the current tariff regime around China (btw a deal could happen and the tariffs could stay), and/or a trade war (as is being threatened) with the EU -- and, as history has proven, an incumbent’s odds of election success amid a recession are nil!

Here’s Deutsche Bank’s chief economist Torsten Slok yesterday on what could end the current expansion sooner than later:

“Trade wars. The U.S. economy would be at risk if the trade war intensifies, with Europe in particular. With growth already slowed, downside risk would be serious for both Europe and the U.S. if there was an escalated or prolonged trade war.”

Bottom line: Protectionism (not to mention populism) is absolutely the existential risk for the current economic expansion and bull market in stocks!