Monday, June 21, 2021

Morning Note: What Is Virtually for Certain

Last week, the worst since last October for the Dow, saw stocks jittery out of the gate -- rightly so as it turns out -- then fold after the Fed announced that 2023 will likely see the beginning of a campaign to wean the economy off of what amounts to a negative (adjusted for inflation) interest rate regime.

Imagine the disruption in those asset markets folks -- by design -- thought were immune to consequential losses due to the promise of perpetual central bank support. Well, as you noticed, several asset markets just gave us, and the Fed, a sneak preview.

As I suggested last week, should markets continue their rumbling (if last week wasn't enough already) expect the Fed's voting members to bend over backward to talk down the threat, big time!

In the weekend video update I pointed out that many of the cyclical sectors are notably "oversold", which suggests that an outsized bounce may be in the near-term offing. Could be hours, days or weeks away, but I suspect it's coming.

Note to clients: The majority of the ETFs we hold are trading x-dividend today. I.e., if you happen to pull up your accounts, what you'll see will be skewed notably by the offsetting reduction in many of your positions' share prices. For example, the unadjusted share price in XLE would have it up 2.18% as I type -- on your screen it'll only show a 1.20% gain (yes, it pays a very high dividend). FEZ is up 0.69%, however it'll show down 0.51%, and so on. The "payable date" is this Thursday, so you'll then see those gains you would've seen today, which will of course distort Thursday's (or Friday's) view, if you happen to look.

Asian equities took their lead from the U.S.'s Friday action, with 11 of the 16 markets closing lower overnight.

Europe's recovering from what was a rough start to its session, with all but 3 of the 19 bourses we follow now in the green as I type.

U.S. major averages have rebounded from an overnight drubbing in the futures session: Dow up 413 points (1.24%), SP500 up 0.84%, SP500 Equal Weight up 1.02%, Nasdaq 100 up 0.10%, Nasdaq Comp up 0.22%, Russell 2000 up 1.40%.

The VIX (SP500 implied volatility) is down 7.97%. VXN (Nasdaq 100 i.v.) is down 0.80%.

Oil futures are up 1.37%, gold's up 0.93%, silver's up 0.77%, copper futures are up 0.16% and the ag complex is down 0.67%.

The 10-year treasury is down (yield up) and the dollar is down a notable 0.35%.

Per the note above, since today's ex-dividend day for the majority of our ETFs, I can't give you a read on our core portfolio. Although, given our positioning, it would be notable, at least to start the session.

In Saturday's commentary I closed with a graph of the commodities/equity ratio, which sits at a historic low. And while, indeed, our work presently points to the potential for notable commodities outperformance (with notable volatility along the way of course) over the next few years, we can never know for certain -- which demands diversification, etc. 

What is virtually for certain, however, is the following:

"Those most adept at profiting from a particular market are often least likely to notice when the game is over, and probably the least psychologically prepared to profit from the successor market."
--Leon Levy

Have a great day!

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