Morning Note: Let's Not Be Presumptuous

Yesterday's entry to our internal market log:

It’s 6pm on Monday, Presidents Day 2022.

News today is that V. Putin has signed declarations recognizing two “separatist republics“ in Ukraine followed by the ordering of “peace keeping” troops to both.

Dow futures are down over 400 points, SPX futures down 1.5%, Nasdaq futures down over 2%.

Wall Street is sounding its obligatory caution not to panic. Reminding that geopolitical surprises tend to cause, albeit at times notable in degree, merely short-lived market disruptions.

Well, I do agree that panic never leads to sound investment decisions, and, as well, given the stakes at hand, I do suspect that this one in and of itself is not likely to dominate our thoughts come, say, mid-term election time.

Not, mind you, to downplay the importance of how the West handles this one (thinking precedent with regard to the future of China/Taiwan)— or, MOST IMPORTANTLY, the sheer-hell-ness of war/senseless loss of life!

And, frankly, for our purposes, we actually shouldn’t downplay market action, given what we know to be an already precarious setup.

I.e., whether we’re talking a historically-expensive, presently liquidity-starved, lacking central bank support equity market correcting in a manner that sets off a cascade of triggered stop losses, margin calls and a gamma-hedging frenzy among put-sellers, or simply a panic among the army of untutored investors (amateurs and “pros”) who thought this stuff was easy and that every dip was to be bought (well, just add all that together), suffice to say that while indeed this may turn out to be a minor market event, it would be presumptuous to bet on it.

No prediction here folks, just risk assessment.

And, of course, if you’ve been taking in our video commentaries, there should be no huge surprise here, as I’ve been pointing to a very difficult technical setup for stocks.

In their morning note, Bespoke Investment Group, in a sense (but not entirely), echoed my yesterday musings:

"For investors with path-dependent exposure to risk assets (margin or other forms of leverage like options), exposure to Russian or Ukrainian assets, or large positions in energy markets, Ukraine is important. For others, we view it as a short-term factor that is less important than other factors right now."

I.e., if you're speculating with leverage, geopolitical disruptions may indeed be consequential. Bespoke presumes that if you're not, you're okay... Makes good sense, unless, that is, such leverage is ubiquitous to the point that it becomes systemic. History favors the former, but occasionally supports the latter... Caution is advised...

All of the above said, equity futures have (for the moment) staged an amazing comeback. As I type the US major averages have recouped the bulk of their overnight losses (one might argue that a Russian invasion was already priced in). Commodities, on the other hand, haven't confirmed that move. I.e., they remain well bid so far this morning...

Asian equities, having closed before this morning's global rebound, suffered overnight, with all but one of the 16 markets we track closing notably lower.

Europe's mixed so far this morning, with 10 of the 19 bourses we follow trading lower as I type.

US major averages are mixed (but leaning green) as well to start the day: Dow down 125 points (0.37%), SP500 up 0.05%, SP500 Equal Weight up 0.12%, Nasdaq 100 up 0.19%, Nasdaq Comp up 0.03%, Russell 2000 up 0.02%.

The VIX sits at 29.07, up 4.76%.

Oil futures are up 2.43%, gold's up 0.30%, silver's up 1.22%, copper futures are up 0.01% and the ag complex (DBA) is up 0.66%.

The 10-year treasury is down (yield up) and the dollar is down 0.02%.

Among our 38 core positions (excluding cash and short-term bond ETF), 26 -- led by MP (rare earth miner), ALB (lithium miner), AMD (chip maker), Latin American equities and PARA (formerly Viacom) -- are in the green so far this morning. The losers are being led lower by solar stocks, Nokia, Eurozone equities, emerging market equities and Disney.

I couldn't agree more with macro expert Lyn Alden on the present-day setup (challenges):

"Basically, in this type of macro environment, we can't just look at 30-40 years of investment backtests and cycles. We have to be open to the possibility of major macro regime shifts, technological disruption, and significant changes to the Overton window."

Have a great day!

Marty