Morning Note: Risk Happens Fast! -- And -- The Case for Copper

If, yesterday, I woke (at the end of the trading session) from a six-month coma, and the first thing I did was check the day's stock market internals, I'd probably say "oh, I must've nodded off for a minute, nothing new going on."

Although I would take note of the Dow down triple digits and the Russell off a big 1.54%.

I.e., the S&P closed essentially flat on the day, the Nasdaq was up a blip, and the underlying breadth, well, it was quite stinky. 

Declining S&P members outnumbered advancers by more than 2 to 1 (tech and financials [but not the bank index] were the only up sectors on the day), with the Nasdaq's breadth nearly just as bad. And the S&P 500 Equal Weight Index (all members carry the same load [i.e., an indicator of breadth]) was down a not-small 0.81%.

Ah, but no -- while the echoes of the recent past (concentrated up moves [weak breadth]) may indeed persist awhile* -- this is not your 6-month ago setup, even though the S&P 500 is right where it was 6 months ago (well, actually, nearly 7 months ago [yellow circle]):

And if we're talking the Nasdaq, literally a year’s worth of gains have evaporated in 3 weeks:

Yep, risk happens fast!

Now, I said "this is not your 6-month ago setup." Well, in a sense, it is... as it comports with the thin ice narrative we've been expressing the whole time since. It's just that reality may (and I emphasize "may") be in the process of rising to the surface — or breaking below, that is. 

Again, we don't make short-term predictions*, we simply assess risk, identify long-term opportunities, and try to act accordingly... 

*One might make a case for a very near-term bounce in US equities as month-end portfolio rebalancing will bring flows into stocks (given the drubbing they've taken in January). Whether or not those flows are met by eager sellers looking for an exit of course remains to be seen... In any event, it’s a highly volatile setup right here for sure!

Speaking of long-term opportunities, while commodities (save for oil) are taking a hit as the dollar spikes this morning, here's Bloomberg's Jake Lloyd-Smith yesterday on the go-forward prospects for copper:   emphasis mine...

"Copper has a bright future as a commodity that’ll be key to the energy transition, supporting higher prices. Every so often a flurry of developments comes along that captures the base metal’s broadening appeal, and this week is one of those times. In quick succession:

* Jeremy Grantham, co-founder of Boston asset manager GMO, sounded the alarm about quickening inflation and slower growth, highlighting a shortage of raw materials including a dearth of “cheap copper.”

* Long-time bull Jeffrey Currie at Goldman Sachs described copper as the “most strategically important commodity” given its role as “the new oil.” The firm’s 12-month target is a record $12,000/ton.

* Richard Adkerson at Freeport-McMoRan said the task of ramping up supply to meet growing demand is getting harder as societies resist new mines and politicians seek a bigger share of profits.

* The Biden administration quashed a project that would have produced copper as well as nickel and cobalt, citing issues with the lease.

In short, already-positive supply-demand fundamentals look well set to improve further. Right now, stockpiles tracked by top exchanges including the LME are at their lowest for this time of year in more than a decade. Look for copper to push back above $10,000/ton and then set a fresh record."

Asian equities had a rough session overnight, with all but 2 of the markets we track closing notably lower.

Europe's catching a bid this morning, with all but 3 of the bourses we follow trading up as I type.

US major averages are higher to start the day: Dow up 363 points (1.06%), SP500 up 1.25%, SP500 Equal Weight up 1.44%, Nasdaq 100 up 1.10%, Nasdaq Comp up 1.12%, Russell 2000 up 1.32%.

The VIX sits at 28.70, down 10.20%.

Oil futures are up 0.84%, gold's down 0.57%, silver's down 2.35%, copper futures are down 0.81% and the ag complex is down 0.27%.

The 10-year treasury is up (yield down) and the dollar is up a big 0.65%.

Led by ALB (lithium miner), energy stocks, Latin American equities, MP (rare earth miner) and materials stocks -- but dragged notably by silver, Asia-Pac equities, gold, ag futures and solar stocks -- our core allocation is up 0.25% to start the session.

The timeless wisdom of Jesse Livermore:

"Without faith in his own judgment no man can go very far in this game. That is about all I have learned—to study general conditions, to take a position and stick to it. I can wait without a twinge of impatience. I can see a setback without being shaken, knowing that it is only temporary."

Have a great day!

Marty