Core Positioning Update (video)

SPECIFICALLY FOR CLIENTS: Here's our latest positioning update where I illustrate the whys and wherefores of the adjustments we've made since mid-year, including how we're currently handling our cash/fixed income exposure, as well as why we're about to re-establish a modest position in AT&T.

Note: Where I make reference to a sector that has "performed well" this year, I'm speaking on a relative basis (coming off of the March low); 7 of the 11 primary U.S. equity sectors remain notably in the red on the year; as do 41 of the 47 foreign equity indices we formally track.

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Macro Update: Pulling Forward

For the second week in a row our macro assessment, via our proprietary index, shows net improvement. The PWA Macro Index gaining 2.14 points, to -6.12:

Missing Out On the Most Important Phase of the Business Cycle!

Taking a break from this morning's macro grind, I thought I'd share this short back and forth between myself and Nick in our firm's chatroom a little while ago:

Morning Note: With the End of Uncertainty

Asian equities, save for Vietnam's, took a bath overnight, with all but 1 of the 16 markets we track closing in the red. Europe, on the other hand, is showing a little strength this morning, with 10 of the 19 bourses we follow trading higher. U.S. major averages look more like Asia did last night so far this morning: Dow down 179 points (-0.67%), S&P 500 down -0.90%, Nasdaq down -1.57%, Russell 2000 down -1.07%.

Chart of the Day: Tim Cook on Q4, "I dunno"

 This (big decline in what folks expend to spend on Christmas this year):

Explains this (Apple offering no calendar Q4 guidance): 

Morning Note: Abnormal Reaction -- And -- Man's Search for Meaning

Just in the course of my morning routine of perusing overnight and early morning data and developments, the Dow went from up mid-double digits (surrendering a 300+ rally in futures trading last night) to down 220 points to up 155 as I type. I would tell you to buckle up, but you're not trading this noise, right? Say "right."

This Week's Message: The Inevitable Consequence

Hmm.... I find myself struggling a bit to get this week's message going. The plethora of stuff we can cover has me doubly challenged. My aim is to hook you from the get go (as this is directed to you clients, and I want you understanding the whys and the wherefores that instruct our decisions regarding your money). And while hook you I may, my main objective is to get you all the way to the net before releasing you back into the turbulent waters we find ourselves swimming in these days. 

So I'll keep brevity in mind as I focus on relevance...

Morning Note: Sell Mode

Lack of a bazooka stimulus plan happening pre-election in the U.S. and covid numbers spiking the world over has global equities in sell mode once again this morning. 11 of the 16 Asian markets we track closed lower overnight. 18 of the 19 European bourses we follow are trading down (big) as I type. U.S. major averages are off notably across the board: Dow down 630 points (-2.30%), S&P 500 down -2.26%, Nasdaq down -2.56%, Russell 2000 down -2.74%.

Morning Note: Words To Live By

Asian equities closed mostly lower overnight (but not bad considering yesterday's rout in U.S. markets), with 10 of the 16 markets we track in the red. Europe's definitely having a rough go of it, with 16 of the 19 bourses we follow currently trading lower. U.S. stocks are struggling to find direction this morning: Dow down 110 points (-0.40%), S&P 500 down -0.15%, Nasdaq up 0.37%, Russell 2000 down -0.42%.

Quick note on today's action...

Well, you know me, it's hard to stay silent on a morning when the Dow was at one point down over 900 points, so allow me to blab for a couple of minutes on what I'm thinking.

Morning Note: Too Easy to Forget

Asian equities leaned lower overnight, with 10 of the 16 markets we track closing in the red. Constructive Brexit headlines can't overcome a notable spike in Covid-19 cases across Europe, with all 19 bourses we track currently trading lower. Stalling stimulus talks and higher Covid numbers has the dollar rising and U.S. stocks falling so far this morning: Dow down -652 points (-2.35%), S&P 500 down -1.98%, Nasdaq down -1.51%, Russell 2000 down -2.64%.

Macro Update: The Hand We're Dealt

This week saw a notable improvement in our proprietary macro index; up 4 points to a net overall score of -8.16.

Morning Note: "At the right price, markets function"

Asian equities traded mostly higher overnight, with 11 of the 16 markets we track closing in the green. European markets are liking the news out of their auto sector, plus I suspect optimism around Brexit isn't hurting either, as 16 of the 19 bourses we follow are in the green as I type. U.S. stocks are searching for direction this morning as disappointing earnings reports from chip makers has tech trading a bit lower: Dow up 28 points (0.10%), S&P 500 up 0.13%, Nasdaq down -0.35%, Russell 2000 up 0.17%.

Morning Note: The "Worst Risk-Reward Profile" (of credit markets)

Asian equities traded in mixed fashion overnight, as 9 of the 16 markets we track closed in the red. Less than rosy economic reports and rapidly rising covid numbers have European stocks down nearly across the board this morning; 16 of the 19 bourses we follow are lower as I type. U.S. major averages remain choppy, as traders await final word on a pre-election "stimulus" package; Dow down 116 points (-0.41%), S&P 500 down -0.40%, Nasdaq down -0.65%, Russell 2000 down 0.19%.

This Week's Message: With Clarity Comes Opportunity, But Patience Is Key...

I'm taking this week's main message from an entry to our internal log that I penned last weekend (adapted/edited to be featured herein).

While, in it, I pull no punches, I want to be careful not to leave you with an all-hope-is-lost feeling. 

Morning Note: For Every Complex Problem

Asian equities traded mostly higher overnight, with 10 of the 16 markets we track closing in the green. While the pound and the euro are loving the positive Brexit (talks) news this morning, European equities aren't feeling it; 17 of the 19 bourses we follow are trading lower as I type. US major averages (save for the Russell) were initially liking the sound of a 48-hour deadline (call it an extension) to get another trillion or three of much needed "stimulus" (call it "support") approved; at the moment, however, not so much: Dow down -48 points (-0.17%), S&P 500 down -0.09%, Nasdaq down -0.07%, Russell 2000 down -0.87%.

Morning Note: Toppy Phenomena

Asian equities traded mostly higher overnight, with 10 of the 16 markets we track closing in the green. Europe's doing well as well, with 13 of the 19 bourses we track up as I type. U.S. major averages are reflecting newfound optimism that a stimulus deal will happen by the end of the day (decent [but not guaranteed] bet I suspect): Dow up 206 points (0.73%), S&P 500 up 0.70%, Nasdaq up 0.42%, Russell 2000 up 0.26%.

Morning Note: The Prelude (well, reminiscent of a past prelude)

Asian stocks traded mostly higher overnight, with 12 of the 16 markets we track closing in the green. Europe, not so much this morning; 11 of the 19 indexes we follow are trading lower as I type. The U.S. major averages, trading on virtually nothing (for the moment) but the prospects for fiscal stimulus, have been all over the place as today's session gets underway. At the moment: Dow down 24 points (-0.06%), S&P 500 down -0.13%, Nasdaq down -0.25%, Russell 2000 up 0.44%.

Random notes from our research thread...

Being surrounded by what I feel blessed to say is an amazing support team allows me to spend most of my time deep in the weeds of markets and of macro conditions.

Macro Update: Yep, Unprecedented...

I'll let JPMorgan CEO Jamie Dimon set the stage for this week's macro update:

“The word unprecedented is rarely used properly. This time, it’s being used properly. It’s unprecedented what’s going on around the world, and obviously Covid itself is a main attribute. The economy would be in shambles without the safety net of the CARES Act. In a normal recession unemployment goes up, delinquencies go up, charge-offs go up, home prices go down; none of that’s true here. Savings are up, incomes are up, home prices are up. So you will see the effect of this recession; you’re just not going to see it right away because of all the stimulus.”

Morning Note: Financial Gravity Suspended

Friday is definitely on my top-7 list of favorite days of the week, as it's the day I score our macro index, so I'll be keeping this morning's note short and sweet.

Morning Note: There's Absolutely A Market For Treasuries

Increasing covid case numbers and lack of agreement on US fiscal stimulus has markets in a risk-off mood round the world. All but two of the 16 Asian equity markets we track closed lower overnight. Europe -- seeing rising covid numbers and proposing new lockdowns -- is red (19 of 19 markets we track) across the board. US major averages are all off this morning as well: Dow down 162 points (-0.57%), S&P 500  down -0.76%, Nasdaq down -1.19%, Russell 2000 down -0.66%.

This Week's Message: No Hunch or Hyperbole

The treasury secretary told Bloomberg News this morning that:

"U.S. DEBT MUST BE DEALT WITH OVER NEXT 10 YEARS."

Yep.... hmm... well... uhhhh... yyyyeah... that's good. Because, well, here's how the future of Federal debt is shaping UP:

Morning Note: The Great One's Greatest Discovery

Quick one for you this morning (our main weekly message to follow soon).

Asian equities were mixed overnight; 9 markets we track down, 7 up. While Brexit headlines remain concerning, the pound (unlike yesterday) is suggesting something constructive is in the works (+0.83% this morning). European stocks are leaning green, with 11 of the 19 bourses we follow presently higher on the session. US major averages are mixed: Dow +17 points (0.06%), S&P 500 up 0.09%, Nasdaq up 0.07%, Russell 2000 down -0.26%.

Quote of the Day: B, B, & B Battening Down

Well, time will tell if the stock market has it right this go-round, or if indeed we're staring down the latter stages of the third epoch bubble in one-fewer decades (remarkable, if so, but explainable, as I'll attempt to do in tomorrow's weekly message).

Morning Note: Patient

Investor expectations in Europe are tanking (per September survey readings), covid cases in Germany are rallying at their fastest pace since April and UK's Boris Johnson says a no-deal Brexit is essentially no big deal. I.e., the euro and the pound are getting pounded this morning, therefore, the dollar's in rally mode. Therefore, while stocks are feeling it, commodities are definitely taking it in the chin.

Quote of the Day: Goes With Our Charts of the Day: Hmm...

In my earlier "Charts of the Day: Hmm..." post I featured visuals showing the session's rise of NDX (Nasdaq 100 Index) and VXN (tracks implied volatility of NDX) and noted that days like today -- both rallying hard -- were rare.

Coincidentally, Bloomberg's Ye Xie noticed it as well and dug into the weeds a bit to find out just how rare the phenomenon has been, and what it typically spells in terms of near-term risk.

Well, following the other 4 times this (and a few other times that were a little less pronounced) has occurred since 2001, VXN did indeed serve as a legitimate short-term warning signal:

"(Bloomberg) -- It’s deja vu all over again. A surge in tech
stocks Monday was accompanied by higher volatility, offering an
eerie reminder of the August stocks melt-up that laid the
groundwork for September’s correction. In fact, it’s only the
fifth time since 2001 when the NDX rose more than 3% and VXN
increased at least 0.8 points. If we lower the threshold for the
NDX to a 2% gain, it’s still a fairly rare occurrence. And the
historical performance in the next two weeks aren’t really
encouraging."

 

For us, this is simply short-term stuff and nothing actionable at this point. But it's worth noting that all occurrences either came amid bear markets or, in one instance (2015), a double-digit correction. 

Charts of the Day: Hmm...

As I type the Nasdaq 100 Index (read tech) is staging one heck of a rally, up 3.21% on the day thus far (although giving a bit back the past hour or so):

Morning Note: Moved by Hopes

Either because of, in spite of, or oblivious to a concerted effort by China to cheapen its lately-strengthening currency (one could make attendant bull or bear cases for the rest of Asia) Asian equities mostly rallied overnight, with 12 of the 16 markets we track closing in the green. Brexit talks this week are all the talk in Europe, and the action in equities and currencies (despite the warning cries) says the UK won't be busting out without a trade deal (the overwhelming political risk makes that my base case as well); all but 4 of the bourses we follow are trading higher so far this morning. U.S.'s major averages, expecting more stimulus (it'll come, whether it's pre or post election), anticipating special stuff out of Apple's big day tomorrow, and betting that positives will emerge from bank earnings results this week are nicely higher as I type: Dow up 269 points (0.94%), S&P 500 up 1.44%, Nasdaq up 2.13%, Russell 2000 up 0.51%.

Macro Update, More on the Debt Mess, and a Synopsis of Our General Thesis

"The real opportunities in macro, you have to wait for. You don't always have to be doing something.

Having lived a few of these markets before, you have to be very careful because you can lose P&L very quickly by getting too excited."

--Raoul Pal, 10/9/2020 RealVision Daily Briefing

Raoul is RealVision's founder and CEO, and one of today's great macro thinkers. Of course I'm quoting him today because, as clients and regular readers know, his comments echo our present thinking...

Morning Note: "Social Sciences Always Start From Problems"

The on again stimulus talks are giving legs to this week's rally, in the face of another 840k folks filing first-time unemployment claims (worse than expected), while nearly 11 million stay on the rolls (although that was fewer than expected). Asian equities rallied overnight nearly across the board, with 14 of the 16 markets we track in the green. Europe's nothing to sneeze at either; 15 of the 19 bourses we follow trading higher this morning. U.S. major averages are up across the board as I type: Dow up 88 points (0.31%), S&P 500 up 0.57%, Nasdaq up 0.36%, Russell 2000 up 0.73%.

This Week's Message: All One Can Do

I think it's safe to say that history has never concluded a setup like the current without seeing stocks suffer a significant, protracted bear market in the process (the Feb/March experience btw doesn't come close). So the question has to be, how does one manage a portfolio amid historic certainty that before the next true expansion or bull market gets underway stocks will experience major, extended losses? 

Morning Note: Beholden to stocks...

Equity markets are attempting to claw back yesterday's losses, as the President claws back yesterday's no-stimulus-till-post-election pledge: A perfect example of how tweet-possessed traders have become, and how strong the belief in the reflexive nature of the stock market; i.e., that rising stock prices engender robust animal spirits (economic action), and vice versa.

Morning Note: Financial Progress Is, Alas, Cyclical

Asian stocks for the most part continued their rally into the week, with 12 of the 16 markets we track closing higher overnight. Same for Europe, with 14 of the 19 we follow in the green so far this morning. U.S. major stocks are more or less hanging in there as well: Dow up 116 points (0.41%), S&P 500 up 0.12%, Nasdaq flat -0.01%, Russell 2000 up 0.99%.

Quote of the Day: The Popular Mind

If I had a nickel for every time someone has asked me since the market recaptured, say, the first 50% of the Feb/March selloff how stock prices can so defy economic reality, well, yeah, lots of nickels...

Morning Note: Risk Is Rallying

Optimism over US fiscal stimulus prospects and positive commentary around the President's present condition is overcoming news of re-lockdowns in New York City, Spain, France, UK and the Czech Republic as global markets get underway this week.