Wednesday, January 26, 2022

Morning Note: Market's Looking for a Soft Fed Statement

Positive earnings news from Microsoft and Texas Instruments, along with an apparent feel that the Fed isn't about to go all in against inflation has US stocks -- particularly the ones that have been getting creamed of late -- rallying hard this morning. 

While recession risk remains low right here, some leading indicators are pointing to slower growth going forward (and a potentially slower pace of inflation). And when we fold in a hyper-sensitive stock market and some troubling geopolitical developments, clearly, the market (this morning) is anticipating a softer-sounding Jerome Powell later today than a Nasdaq Comp Index down ~14% year-to-date would otherwise suggest.

Suffice to say that yet another intraday outsized move is likely, given today's setup.

As clients know, we remain bullish on commodities going forward, energy included. One of the reasons for our positive bent is the general lack of capital investment across the space (although that'll virtually have to pick up some if rising price trends continue).

Here's from Bespoke Investment Group yesterday evening:
"S&P 500 Energy companies have slashed capex to 2005 levels, unwinding a massive increase during the 2000s commodity supercycle. Investors are for now rewarding management teams for not ramping up production, but instead focusing on reaping the harvest of high prices."

Asian equities leaned green overnight, with 9 of the 16 markets we track (India and Australia were on holiday) closing higher.

Europe's catching a nice bid this morning, with all but 1 of the 19 bourses we follow trading up as I type.

US major averages are green across the board: Dow up 356 points (1.05%), SP500 up 1.58%, SP500 Equal Weight up 1.17%, Nasdaq 100 up 2.12%, Nasdaq Comp up 2.11%, Russell 2000 up 1.60%.

The VIX sits at 28.93, down 7.16%.

Oil futures are up 1.67%, gold's down 0.54%, silver's up 0.18%, copper futures are up 1.10% and the ag complex is down 0.20%.

The 10-year treasury is up (yield down) and the dollar is up 0.24%.

Led by solar stocks, MP (rare earth miner), semiconductor stocks, ALB (lithium miner) and wind stocks -- but dragged by AT&T, Verizon, gold, Viacom/CBS and Indian equities -- our core allocation is up 0.38% to start the session.

Wall Street guru Martin Leibowitz, in a recent RealVision interview, speaks of the essential (critical even) trait among serious investors, and advisors:
" should have great humility in approaching any of these problems or any of these questions, because the real world, and even just the financial world (that very narrow section of it), is very complex. Any one explanation is not going to fit the full story at a given point in time or for all times.
I think humility is probably the first, the one, thing. When you think you know something that the market doesn't know, be very, very skeptical of yourself."

Have a great day!

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