Over the years I've devoted volumes herein and elsewhere expressing my concerns (well... complaining) over the folly of government intervention into the functions of the economy.
Well, I suppose it's all fine and good to educate folks on (complain about) how the misallocation of resources (via government diktat) impacts the economy and the markets, in the end, however, our job here at PWA is to see the forest for the trees and, in the process, protect and grow our clients' wealth.
With the aim of finishing up our year-end message by the weekend, I'll simply quote from economist Peter Boockvar's morning note, on inflation, offer up a quick comment, and, as usual, report the morning numbers.
Our US sector weightings (expressed primarily within our portfolios by their respective tracking ETFs) in order of prominence are: Materials, Industrials, Consumer Staples, Energy, Financials, Healthcare, Tech and Utilities.
While virologists we're definitely not, for obvious reasons we need to stay intimate with global developments around Covid-19.
After posting our not-short Year-End Letter Part 4 yesterday (with a part or two left to come), I'll keep this morning's note short and sweet.
First, one more for those who believe the severe shortage of certain essential stuffs (such as chips for all manner of technology, including cars) over the past year has been all about COVID.
Our own general conditions index rose 2 points last week, thanks to our score for consumer confidence going from negative to neutral, along with a pick up in truck tonnage. The only negative mover among our 48 inputs was the sectors/SP500 ratio; back to negative, after just a week in the plus column:
Per yesterday's peek at the S&P 500 daily chart, the technicals paint a somewhat concerning picture about the go-forward prospects for US equities.
Yesterday morning we credited the then equity market selloff to a dire headline related to COVID and a market-rattling one suggesting President Biden's bill was kaput.
Before we explain what the first graph below represents, have a look at its price action during the 90s tech-fueled bull market:
110k more than expected housing starts and a generally better look to our sectors/SP500 ratios (financials, materials and energy outperforming the broader average of late) were offset by weakening small business expansion plans and a notable outperformance of consumer staples over consumer discretionary stocks (muddies the sector/SP500 results). Therefore, our PWA Macro Index broke even on the week:
Like we said in Part 2 of this year's year-end letter, we don't see inflation (nor commodity prices) rising in a straight line going forward. Nor does FedEx's Chief Operating Officer.
Well, Jerome Powell threaded the needle beautifully yesterday. That is, if his objective was to acknowledge that inflation is indeed worthy of the Fed's attention, without at the same time cracking the equity market.
Fed Chair Jerome Powell finds himself in quite the pickle this afternoon: In his post-meeting press conference -- after the delivery (at 2pm Eastern) of a decision to keep the Fed funds rate pegged between 0 and .25% for the time being and (odds favor) to speed up the pace at which their tapering back monthly asset purchases -- he'll be efforting to not crack the equity market with his newfound resolve to tackle (well, let's say to "address") inflation.
Just a quick look at the technicals and a report on the early-session action across markets this morning. My plan is to get Part 2 of our year-end letter out to you by the weekend.
Just performed the weekly scoring of our PWA Macro Index (was out of the office late last week), and, thanks to an uptick in commercial and industrial (C&I) loans, our general conditions barometer rose 4.18 points on the week:
If indeed stock market bulls are fretting (they indeed are) over the prospects for the Fed reducing its level of monetary accommodation during the months to come, one might think that two more reported studies suggesting that presently available vaccines are notably less effective against the Omicron variant would have them somewhat sanguine in the face of this week's Fed policy meeting.
Just a quick one this morning, as I'm technically out of the office till Monday, physically so right after I send this note. ⛷ 😎
Woke up this morning to news that weekly jobless came in at an amazingly low 184k! Clearly, employers who remain starved for workers are keeping the ones they have, and, make no mistake, paying them more for the privilege.
In their market-wrapping commentary yesterday the folks at Bespoke Investment Group found themselves a bit perplexed over yesterday's action in the stock market.
They pointed to notably bad news coming from the first study on vaccine effectiveness versus the Omicron variant:
On several occasions herein we've illustrated what we believe to be the go-forward (long-term) unsustainable outperformance US equities have enjoyed over the rest of the world this past decade.
As has become our custom in recent years, we'll devote the beginning of our 2021 year-end message to a metaphorical look at how we view what we do.
In yesterday's video commentary I pointed to a technically constructive immediate-term setup for US stocks.
Looks like, at least at the start this morning, it's playing out as the charts suggested.
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:
This morning's jobs report was odd, to put it mildly!
Here are a couple of key tidbits from yesterday's release of the Fed's Beige Book (an assessment of conditions across Fed districts): emphasis mine...
Just sayin, media needs an excuse, and it matters mostly short-term and at the margins.
Headline:
Whether the positive market action this morning implies sudden sanguineness around the new variant, or comports with our view that -- change of tone aside -- the Fed has backed itself into a corner that really doesn't allow it to come out swinging on inflation, or the fact that on average Decembers are very good (simple seasonality), this morning's bounce in equities makes some sense.
"Generally, the higher prices we’re seeing are related to the supply and demand imbalances that can be traced directly back to the pandemic.""But it’s also the case that pricing increases have spread much more broadly in the recent few months."
"...it's time to retire the word "transitory" regarding inflation."
One might conclude that making such a declaration amid rising COVID uncertainty means the Fed is actually willing to let a little air out of the equity market bubble.
Time will tell...
Equity futures last evening quickly moved from nicely red to notably green upon Moderna's CEO telling the Financial Times, with regard to the existing vaccine efficacy related to the latest COVID variant:
As I type, the Dow's shaved a 300-point opening rally by two-thirds, while metals and materials (and their related companies) and global equities, while generally higher, lag notably... US consumer staples, industrial and financial stocks are actually in the red so far this morning.
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:
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:
While you'd expect quiet on the day before Thanksgiving, well, definitely not -- in terms of the number of data releases -- on the economic front.
Here' I'll try to sum much of it up:
As clients and long-time readers know, we do a great deal of deep ongoing analyses in our effort to ensure that our client portfolios reflect what we believe, in the aggregate, is the best overall risk/reward setup. That process -- which includes both fundamental and technical analysis across asset classes, sectors, regions, politics, geopolitics, etc. -- over the years has led us to creating proprietary indicators in areas such as the macro economy, financial stress and investor sentiment.
The Biden Administration announced this morning the re-nomination of Fed Chair Jerome Powell. In that, as they say, equity markets detest uncertainty, headlines suggest that Powell's extension entirely explains a nice pop in the US major averages so far this morning.
From our morning note:
"...suffice to say that a truly healthy market setup is generally one where most boats are rising with the tide. Poor breadth suggests that a given index is being propelled by a concentrated group of members. I.e., stress in a single stock, or a mere handful of stocks, can send an entire index reeling. Which was a much-documented phenomenon that preceded the bursting of the late-90s tech bubble."Just ran across this from Semper Augustus President and CIO Christopher Bloomstrand:
While there's much macro in the world to touch on, we'll save it for this weekend's update and focus briefly this morning on the recent troubling trends in stock market breadth.
Let's just say that while seasonality right here inspires legitimate near-term bullishness, the breadth readings pose a headwind to that sentiment.
Judging by the volatile level of hits volume we're seeing on our daily blog posts it's clear that catchy titles and/or tantalizing teasers tend to capture far more attention than those that come across more or less ho hum. Thing is, it's often those with less-enticing titles/teasers that contain some of the most important messaging that we really want clients taking in.
So, with that in mind, we're going to make a weekly habit out of offering up highlights (with links) from the prior 7 days of messaging that capture what we believe to be the important point(s) of the prior week.
Here you go:
Along with our own macro and financial stress indices we maintain another barometer that tracks investor sentiment. Long-time clients and readers will recall many "side-of-the-boat" references made herein over the years. I.e., we try to discern when there's a crowding on either the bull or the bear side of the boat, as, when either nears an extreme, there's heightened risk that the boat will begin to take on water, sending the crowd, in a blind panic, sprinting to the other side.
Overnight and early morning data releases show a generally mixed overall macro setup that we'll tackle in this week's macro update.
In the meantime, here are your morning numbers followed by a telling technical market update that I shot last night:
Here's the monthly change in consumer revolving debt. Note the big jump in credit card usage over the past few months vs the 2 years+ of frugality following the 2008 recession:
Here's Bespoke Investment Group's intro to their market commentary this morning (I'll bold the part that jibes with the macro update I sent out over the weekend):
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:
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:
We'll update you on the macro in quick and easy fashion this week.
Our proprietary index gained 2.08 points, for an overall score of +20.83:
In yesterday's technical market update, subtitled "Why We "Technically" Like Japan Right Here" I suggested that we'll likely see increased fiscal activity in Japan going forward.
Here, coincidentally, is BCA Research making that point today:
This morning's job numbers did not disappoint!
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:
In a technical look at the market video I shot yesterday morning (sending the finished product to you shortly), I mentioned the bullish seasonality that takes us to the end of the year, then intimated that the calendar turn may usher in a more difficult period for stocks.
So, we've been hearing, seems like day after day, that the stock market -- i.e., the Dow or the S&P 500, or both -- keeps hitting new all time highs. Client after client during our review meetings mention it, with most (our clients are by and large a "mature" bunch) following with a concerning "something's gotta give", or words to that effect...
A few key highlights from the ISM's October Purchasing Managers Survey:
“Business Survey Committee panelists reported that their companies and suppliers continue to deal with an unprecedented number of hurdles to meet increasing demand. All segments of the manufacturing economy are impacted by record-long raw materials lead times, continued shortages of critical materials, rising commodities prices and difficulties in transporting products.
Japan, whose equities occupy ~60% of our developed Asia-Pac exposure -- and who presently represents the top foreign country weighting in our core portfolio -- saw election results yesterday that preserved an outright majority for its recently minted Prime Minister Fumio Kishida. Consequently, the country's stocks rallied 2.61% overnight.
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:
Clearly, all markets aren't all in on the Fed and the ECB's (European Central Bank) stated view that the present level of inflation, while not abating as soon as they had anticipated (prayed), is "transitory." Rate hike odds -- more and sooner than previously priced -- are being priced in to a degree that is beginning to play havoc with yield curves.
Here's our chart of the 2yr/10yr treasury yield curve:
"The big money was not in the individual fluctuations but in the main movements that is, not in reading the tape but in sizing up the entire market and its trend."
--Jesse LIvermore
Once again, we'll devote this week's main message to the highlights from the past week's key messaging:
So, US GDP for the 3rd quarter came in at 2.0%, thanks to a build in inventories. Were it not for inventories, growth would've been nada.
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:
As I've noted herein a few times heading into this earnings season, we've been keenly concerned with the forward guidance companies might issue in the face of persistent bottlenecks in virtually all things input, including, apparently, labor.
I've seen several blurbs of late on how positive breadth readings are for the S&P 500 Index, particularly the comparison between advancing and declining members.
In this morning's note I suggested that a "regime" change may be in the offing. It's always interesting to track style relationships over a few market cycles.
Well, the very short-term SP500 technical setup, while not as bearish as it was bullish (as I pointed out in this video) heading into the month, doesn't look all that constructive as we close out the month.
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:
The opening sentence from this week's release of the Fed's Beige Book* echoes the story we've been telling of late. That is, recession risk remains low, but growth is slowing:
The following blurb from BCA Research yesterday comports to a virtual T with our go-forward macro thesis related to equities and, per the last sentence (although for add'l reasons), the dollar -- and, thus, with our present on balance positioning:
As you may have noticed, September was relatively tough on the stock market:
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:
Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.
One of our concerns heading into this earnings season was the extent to which rising input costs would do a number on corporate bottom lines and forward guidance, and, thus, on stock prices.
The 2-year treasury yield (in orange below) -- a presumed harbinger of Fed funds rates (white line) to come -- is suggesting that the Fed is not far away from doing more than simply tapering its monthly bond purchases:
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:
Please pardon my cynicism, and we do like banks right here, but when the powers that be engage in what ultimately amounts to the pumping of unthinkable liquidity into the financial system (read markets), well, yeah, you're going to see news lines like this following a Goldman Sachs' earnings announcement:
Inflation, per this morning's CPI print, is running hotter than economists predicted, but certainly not hotter than you and I are feeling. But, hey, maybe not... I mean J. Powell did say inflation is concentrated in just a few select areas.
So, if we ex-out, umm, well, like everything, we're good.
Suffice to say that, while we see low recession odds on the foreseeable horizon, overall economic sentiment is clearly waning.
On the global front, the IMF published its latest World Economic Outlook this morning.
Here's the intro: emphasis mine...
With the bond market shuttered and no major data releases or earnings reports this morning, there's not much to cover on this side of the pond.
Well, then again, there is the price of oil, which now fetches over $80/barrel! We've mentioned plenty herein how there simply won't be the expansion of fossil fuel production capacity that $80 and a growing global economy might otherwise inspire. That said, there are for sure plenty of existing wells that can be turned back on as, yes, there's money to be made at $80. Baker Hughes just reported the 5th week in a row of rising rig counts, and we should expect refining capacity to expand (come back) going forward, coming off of hurricane and, not to mention, COVID constraints.
Yesterday evening I listened to the latest Grant Williams and Bill Fleckenstein "End Game" podcast; their guest was Simplify Asset Management's Harley Bassman.
While I didn't necessarily agree with all of Harley's assertions, I nevertheless found him to be an exceedingly sharp, very deep thinker on markets.
The following exchange resonated with me; i.e., with my view of present Fed policy and the hazardous setup it engenders:
An uptick in the JPMorgan Global Composite PMI (Purchasing Managers Index) has our macro index back above 20 this week (20.85).
At first blush this morning's jobs number looked like a big bust; 194k net jobs added vs 500k expected.
At second blush, however, it was fine:
I'm unexpectedly on the road today, so I wasn't in a position to offer up the usual morning note.
As I suspect you noticed, equity markets staged a nice rally today that was essentially follow through on yesterday's bounce; that by all appearances was inspired by some political give on the debt ceiling.
In yesterday's video commentary I finished with:
"...we have huge opportunities relative to our longer-term weaker-dollar/inflationary thesis that we think are going to play out nicely over the next few years. Next few weeks and months? I dunno..."
I.e., while we fully anticipate intense (at times) volatility across, for one, our commodities exposures, our base case relative to what are slow supply responses to increasing pricing dynamics remains very much intact.
Interesting action so far this morning. Overnight, as equity futures were melting down, headlines suggested it was all about rising interest rates and energy prices. However, before we made it to the cash session, interest rates turned negative and energy prices, nat gas in particular, utterly plunged. And, while off their lows (in the U.S.) stocks are still struggling notably.
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:
In our portfolio discussion yesterday Nick and I pondered the coming earnings season. The key question: How are companies going to handle their forward guidance when so many are hamstrung by lack of necessary materials, components and such?
As we enter what is typically the best quarter for equities, market actors worry over the outcomes of what are, at this juncture, essentially little more than political calculations.
Quick update this week.
Our macro index moved down a titch with just one input (durable goods orders ex-transportation) changing score (positive to neutral).
Equities (in the pre-market) were looking to extend their selloff into October when Merck announced positive test results on its oral anti-viral COVID treatment. Apparently sparking a notable move from red to green in futures.
So, we'll see, the pattern of late for U.S. equities has been one of deterioration as the trading day wears on.
Is there cause for optimism around equities heading into the fourth quarter? Sure. Is there nevertheless some serious risk in the overall setup? Yes. Should we, even if the optimists have it right, anticipate some serious volatility in Q4? Absolutely!
Ironically, much of the stuff that allows for optimism is the stuff that defines much of the risk as well.
Rising jobless claims (362k this morning vs 351k last week vs 335k the week before) fly directly in the face of evidence that says the economy's expanding.
Well, actually, maybe not.
Treasury yields are taking a bit of a breather after seeing quite the spike over the past week or so.
Our agriculture futures ETF now occupies a not-small position in our core portfolio. An article published this morning by Bloomberg titled The Country That Makes Breakfast for the World Is Plagued by Fire, Frost and Drought tells of why unpredictable weather patterns (disrupting production/sparking higher pricing) are a key part of our thesis:
So equity markets are feeling the jitters this morning. Question is, over what?
Well, in DC, well, it's a mess... Here's Bespoke Investment Group summing it up in their morning note:
Here's a snip from our July 14th of this year post (oil was $54 a barrel that day):
"As clients and regular readers have noticed, we remain bullish (long-term) on energy -- and I'm not talking just renewables right here.
In a nutshell, fossil fuel markets have seen massive capital expenditure reduction of late -- with the expectation of more cuts to come. I.e., we're talking less capacity to produce to an extent that we think massively overcompensates for the go-forward reduction in demand due to the adoption in renewables."
It's $74 this morning!
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:
Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.
The latest Grant Williams Podcast featured Prerequisite Capital's Daniel Want. The following from that conversation speaks volumes about the unique market landscape we find ourselves presently traversing:
So it's September, the only month of the year that over the long-run sports a negative average annual return for the S&P 500 Index. And, so far, September 2021 hasn't disappointed.
Monday's release of NAHB's monthly homebuilder sentiment read had builders feeling a bit better about their current setup and essentially the same regarding future expectations, in comparison to the previous month.
In this week's main message I'll be touching on the China property bubble saga, the toppiness of U.S. equities, incentives (or constraints if you will) with regard to policy makers' approach to the financial markets and, amid palpable uncertainty, a few things we know for sure. Time permitting, it'll hit your inbox sometime later today or early tomorrow.
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:
Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.
Well, this'll likely be the last you'll hear from me for the next week or so. Heading out soon for my annual trek to Montana to do a little fly fishing with a buddy and my dear friend Matt, the fishing guide whom I introduced you to a few years ago. I believe that blog post holds the all-time record for most hits. Linking it to last September's rendition. Note that this year I'll be out of the office Monday through Friday.
As for our weekly macro analysis, I'll keep this one brief.
As we've stressed herein over the past year, the present state of financial markets, by itself, does not allow the Fed to get, let's say, consequential, in terms of combating inflation going forward.
In his morning note economist Peter Boockvar suggests the following of the Fed:
I ran across the following Robert Oppenheimer quote while listening to a recorded lecture yesterday and got to thinking about how the desperation of policymakers, elected and appointed, to circumvent the painful (yet essential) stages of cyclical economic and market phenomena grows -- as do the tools they bring to bear -- with each cycle:
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.
Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.
Generally-speaking, the initial market reaction to a bit of news or data doesn't always end up reflecting what ultimately becomes the, let's say, enduring market reaction. This morning, however, with regard to the July jobs data, I think the market's impulse is on the money.
There's virtually nothing in the morning data worth getting excited about. Jobless claims were a bit better than expected, the trade balance was as well, auto sales were abysmal but there we're talking lack of inventory, unit labor costs were up (productivity down) but there we're talking increased working hours, factory orders were a hair better than expected and the final durable goods number shows a 1% month-on-month decline. One could make a stink over European producer prices popping by 2.3% month-on-month, but no, as I type our Eurozone ETF is right there with the S&P 500 this morning, up a smidge.
The trade that keeps on ticking is large cap U.S. growth (read big tech). And the latest data, frankly, couldn't offer more support.
Global PMIs overnight confirmed that economies are indeed coming off the boil. Whether it's a natural come-down from what we'll deem an overdose of government stimuli or it's more about the delta variant, or a bit of both, remains to be seen.
Despite the present tumults of Afghanistan, Ida and Delta, markets are relatively quiet to start the week.
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:
Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.
Traders were sanguine this morning ahead of Fed head Powell's speech due to start at 10am ET. Which is interesting since, without exception, the five Fed members (only one a voting member) who've granted interviews yesterday and today said they're ready to begin cutting monthly bond purchases much sooner than later.
Tomorrow is setting up to be an interesting day for markets. Fed Chair J. Powell gives his keynote speech in Jackson Hole; a speech that was, at one point, clearly meant to confirm that indeed taper (cutting a bit back on monthly bond purchase) was coming, and to offer up the timeline.
Thing is, during the time between the recent lining up of Fed board members to each give their public nods to taper and today, the delta variant has reared its very ugly head -- seeding doubt around Powell sounding the alarm come tomorrow.
In last week's macro video I featured a clip of an interview where an analyst made a case for European stocks that comports with our own long-term thesis. I also reiterated that much of the rest of the outside world's equity markets offer a unique relative (to the U.S.) value proposition as well.
I'll cut quickly to the chase this morning after a few quotes from my own morning reads (although don't skip this one, the book quote at the bottom's a good one). A more substantial weekly message will follow later today.
Weekend news says Korean exports for the first 20 days of August surprised to the upside, and Japan's and Australia's latest manufacturing PMI surveys held up fine. Their respective services PMI surveys, however, contracted notably (covid fears and restrictions). Eurozone services PMI's held up much better (higher vaccine rates and notably fewer restrictions, if any), while manufacturing PMIs continue to denote a mix of optimism, supply constraints and inflation.
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:
Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.
Early in the video, where I show the history of our index against the S&P 500, I remind the viewer of what I was anticipating back in the day -- that when our index turns red and we turn cautious, in all likelihood the market will rally a bit further.
I forgot to explain why that might occur: It's simply because the very same data that would have us cautious would spook policymakers into taking measures that would likely boost equity markets in an attempt to inspire the sort of reflexivity that they'd hope would avert an impending economic slowdown.
Yesterday, I touched on the resoundingly negative breadth that conflicted with positive moves in the major averages. While this morning's breadth is a touch more tolerable, it's still nothing to write home about.
As I type, the S&P 500 Index has clawed its way back to a 4 point gain, while the Nasdaq Composite is now up an impressive, all things considered, 0.24%.
So the U.S. stock market's back from a messy couple of days! Well, not so fast. As I type, literally 60% of the S&P 500's constituents are down on the morning, while just shy of 70% of the Nasdaq's members are currently bleeding.
For this week's main message I'll share an excerpt from my latest internal log entry, where I briefly update our theses on individual positions. Specifically, non-US equities, gold and ag futures. But first, my thoughts on today's market reaction to the release of the Fed's latest meeting minutes.
As we've previously discussed herein, folks (survey respondents) think it's, frankly, an awful time to go buying a house. That, by the way, was confirmed in the latest from the widely followed University of Michigan Consumer Survey.
Clearly, there's lots (LOTS!) going on in the world for the equity market to get the jitters over. There's also, as I mentioned in our recent technical look at gold and U.S. equities, seasonality:
Our October 30, 2020 Macro Update was subtitled "Pulling Forward." Here's a snippet:
A Chinese data miss, the delta spread and the disheartening scenes from Afghanistan has global equities (save for India's) heading south to start the week.
Lots to parse in our weekly macro exercise today, so I'll keep this morning's note short and sweet.
So, according to an Evercore ISI survey, retailers are presently able to pass higher costs onto the consumer:
It's probably safe to say that reports of the death of the reflation trade have been greatly exaggerated. Of course our longer-term base case firmly supports that notion. The past few days have seen growth (read tech) give way (notably) to the likes of industrials, materials, financials and so on.
So, inflation remains hot, but presumably not as hot as some expected this morning's CPI report to print, and word has it that the Biden Administration is urging OPEC to open the oil taps a bit more.
With regard to the latter, the message is, help us out here, we're going to be spending hugely* and we need to get the inflation bug off our back...
"Presumed noble intentions notwithstanding, and while, indeed, the Delta variant may represent heightened deterrent for the careful would-be job-seeker, aggressive government intervention can't help but lead to market distortions; labor market included..."
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:
Last night was something to behold during the Asian session. The volatility was notable in equity futures, in tech in particular, but it was extreme in the precious metals space. Here's Peter Boockvar's take:
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:
So ya'd think on a morning when the official jobs number comes in just shy of a million that the stock market would be screaming higher, wouldn't ya?
Per this week's main message, pundits who believe we're to revert right back to the inflation setup (none to speak of) of the past several decades point to the signals of a bond market that is anything but a legitimate market/economic signaler these days. It, in a sense, signals whatever the Fed desires it to signal -- which would be that inflation this go-round is "transitory" and, therefore, the Fed's free to print at will, to suppress interest rates ad infinitum and to essentially fund federal deficits as far as the eye can see.
Sharing my latest entry to our internal log as this week's main message:
8/2/2021ADP's jobs number whiffed expectations by a mile this morning, seeing bond yields lower and the gold price higher on the news.
Fed Chair J. Powell suggested in last Wednesday's press conference that inflation was concentrated in select areas of the economy.
Here was my take last Thursday morning:
15 of the 24 July global manufacturing purchasing manager's indices that were posted overnight showed declining sentiment readings (vs June's). With presently covid-stricken areas of Asia of course faring the worst.
While, like all tradable markets, the commodity space will absolutely see its share of volatility* (down and up) in the months and years to come, as we've firmly stated herein, in our view the longer-term setup remains historically-attractive.
Mixing it up a bit, we'll do this week's macro update in writing...
For starters, our own general conditions index scored no change on the week, with an overall macro score of 29.17:
"Even though the S&P's hitting new highs I'm hard-pressed to find people that are really enjoying this and that are excited about this move. Most people that I know, professional traders, are all holding their heads down and complaining about how this is hurting and how nothing's working."
Of all the companies to miss revenue expectations, in this environment, Amazon... Hmm... Its stock price this morning (off nearly 7%) says traders were caught a bit off guard.
Of course it's not that Amazon is suffering in the least, it's that the operative word above is "expectations." And human nature being what it is, there's that "recency bias" (always anticipating more of the latest) that forever rocks markets as economic and market regimes begin to change... More on that in our upcoming macro update...
So, status quo it was for the Fed yesterday. Here's from this week's main message, posted yesterday:
This week's main message comes from my most recent entry to our internal market log:
7/25/2021 Immediate and intermediate-term conditions:
Three heavyweights (to put it mildly) -- Apple, Microsoft and Google -- per their after-the-bell earnings releases yesterday scored knockouts. I.e., they soundly beat analysts' estimates.
If you're the type who cares to follow day-to-day market gyrations.. well, like I said last Tuesday,
"One thing's for certain, it's going to be one volatile summer for asset markets!"
While heavyweight earnings releases (Apple, Google and Microsoft today) can certainly move the equity market, a Fed policy meeting announcement (tomorrow) can move everything.
You've heard me make the point over and over again (as recently as this weekend's video) that the Fed simply can't let the stock market go (not suggesting they'll succeed indefinitely), as our economy is essentially levered to its continued rise.
As I record the year-to-date results of the world's major equity markets (part of our weekly macro exercise), two areas have been jumping out at me for the past several months, Asia (China in particular) and Latin America.
Pulitzer Prize-winning author and economic historian Daniel Yergin is considered one of the world's most influential energy pundits. He was the featured guest in today's Smarter Markets podcast.
As clients will note below, his commentary jibes to a virtual T with our long-term thesis (which we're expressing in our core portfolio) on the energy, and the mining, space:
Bloomberg opinion columnist, Allianz Chief Economist, Ex-Pimco CIO and Queens College, Cambridge President Mohamed El-Erian is on the same page we are on inflation going forward:
"Inflation is not going to be transitory. I've been pretty certain in my mind about three prior calls (all were spot on). This is the fourth one."
"I have a whole list of companies that have announced price increases, that have told us they expect further price increases, and that they expect them to stick."
Among other things, I make mention of the latter in this week's video, below...
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: