Friday, February 25, 2022

Morning Note: The Fed Appears Undeterred (for the moment)

So, indeed, that "oversoldness" we pointed to earlier in the week led to quite the bounce in equities yesterday. And/or, the notion that global angst just might lead to less inflation angst (particularly since sanctions didn't effectively hit commodity channels), and, therefore, inspire a softer central bank approach to inflation, had traders wading back in, in force.

For the moment, we favor the former (although we're open to the prospects for the latter), which jibes with yesterday's chatter from the US Central Bank:

“My preference is to increase the target range by 100 bps by the middle of the year.”
--Fed Governor Chris Waller
Echoing Jim Bullard's desire to see the same by July 1.

Equities this morning appear to be responding to reports that Putin is possibly ready to talk -- and/or there's more left in that oversold bounce:
(Bloomberg) -- Russia's Vladimir Putin is reportedly open to sending a delegation to Minsk for talks with Ukraine.

And apparently China's Xi is urging him to do just that...

With regard to market breadth this morning, while the Dow and the S&P are nicely in the green as I type, yesterday's big winner, the Nasdaq, is actually off a bit. Tech's lower by 0.33%...

Tech (being uber interest rate sensitive) trailing this morning supports the position that yesterday was, at least in part, about the notion that the Fed may, given present geopolitics, back off a bit from the yet-to-start inflation fight. A notion that carries less wait at the moment, hence the weakness in tech...

Bottom line, if you're thinking short-term, do not hold your breath on anything right here. Look for intense volatility in both directions, across sectors and asset classes, as present conditions play themselves out.

Asian equities traded up, nearly across the board, overnight, with all but 1 of the 16 markets we track closing higher.

Europe's in rally mode as well this morning, with 18 of the 19 bourses we follow in the green as I type.

US major averages are mixed: Dow up 172 points (0.52%), SP500 up 0.37%, SP500 Equal Weight up 0.68%, Nasdaq 100 down 0.34%, Nasdaq Comp down 0.32%, Russell 2000 up 0.26%. 

The VIX sits at 29.67, down 2.14%.

Oil futures are down 0.75%, gold's down 0.50%, silver's down 0.94%, copper futures are up 0.38%, and the ag complex (DBA) is down 2.07%.

The 10-year treasury is down (yield up) and the dollar is down 0.25%.

Among our 38 core positions (excluding cash and short-term bond ETF), 26 -- led by bank stocks, Verizon, energy stocks, staples stocks and AMD -- are in the green so far this morning. The losers are being led lower by MP (rare earth miner), ag futures, PARA (formerly Viacom), ALB (lithium miner), Disney and silver.

We couldn't agree more with Howard Marks on the following:  emphasis mine...
"In my view, the greatest way to optimize the positioning of a portfolio at a given point in time is through deciding what balance it should strike between aggressiveness and defensiveness. And I believe the aggressiveness/defensiveness balance should be adjusted over time in response to changes in the state of the investment environment and where a number of elements stand in their cycles."

--Marks, Howard. Mastering the Market Cycle

Have a nice day!

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