Wednesday, November 3, 2021

Morning Note: What About the Roots? -- And -- Expect Syrup

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...

Well, yeah, even in today's Fed-supported setup, I suspect that market trees still don't grow to the sky... And, by the way, the roots supporting those trees may not be quite as strong as those headlines suggest. 

I.e., allow me to inject a little context into today's stock market narrative. 

For starters, if an index hit an all time high one day and it moves by 1/1000th of a percent the next, the news headline will read "new all time high." 

Secondly, the following from an excellent Real Vision interview with Strategas Research's Chris Verrone that aired last Friday:  emphasis mine...

"...what we all have to realize is the index is not the market. The index is essentially five stocks. If you look at the five large FAANG names, they're something like 30% of the weight to the S&P, something like 40% of the weight of the NASDAQ 100.
So the day-to-day gyrations of the index really don't reflect what the average stock is doing. And that was really on display all spring and summer. The index was grinding higher because mega cap growth, mega cap tech was making new highs. But under the surface, most stocks were actually correcting. The average industrial stock corrected 20% this summer. The average auto corrected 25%. Energy came in.
So the average issue was consolidating, or maybe reflecting this growth scare or this supply chain issue that we saw all spring and summer." 

We'll dig deeper "under the surface" when we tackle the technicals (video) shortly...

It's Fed day, so if you're looking for something out of the equity market this morning, ignore it till 11am pt (the "announcement"). They've abundantly signaled that a "tapering" of their monthly bond purchases is about to begin (likely this month), so confirming that shouldn't rattle the market too much, if at all. If, however, J. Powell doesn't soften that announcement with the syrupiest of market-calming dovishness on future interest rates -- which is my (and "the market's") expectation -- look for sharp volatility (down) before your dip buying traders swoop in...

Asian equities leaned red overnight with 9 of the 16 markets we track (Japan was closed) closing lower.

Europe's leaning green this morning, with 12 of the 19 bourses we follow trading higher, as I type.

US major averages are mixed to start the day: Dow down 118 points (0.33%), SP500 down 0.11%, Nasdaq 100 up 0.07%, Nasdaq Comp up 0.04%, Russell 2000 up 0.43%.

The VIX sits at 16.21, up 1.06%.

Oil futures are down 2.57%, gold's down 1.20%, silver's down 2.0%, copper futures are down 0.17% and the ag complex is down 0.26%.

The 10-year treasury is up (yield down) and the dollar is up 0.06%.

Led by uranium miners, MP (rare earth miner), Nokia, AMD and KRBN (carbon credits) -- but dragged by wind stocks, silver, solar stocks, gold and energy services companies -- our core mix is off 0.19% to start the session.

Can't quote JK Galbraith enough, frankly... particularly during times like these!

"No one can doubt that the American people remain susceptible to the speculative mood—to the conviction that enterprise can be attended by unlimited rewards in which they, individually, were meant to share.
A rising market can still bring the reality of riches. This, in turn, can draw more and more people to participate. The government preventatives and controls are ready. In the hands of a determined government their efficacy cannot be doubted. There are, however, a hundred reasons why a government will determine not to use them."
--Galbraith, John Kenneth. The Great Crash 1929 

Have a great day!

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