Wednesday, March 23, 2022

Morning Note: Maybe It's ....................

In yesterday's note I suggested that it was no mystery to us why stocks (via the SP500) have only suffered mid-single digit declines year-to-date (although they were low-double digit at one point). I referenced the "wall of worry" adage to suggest that there's sufficient potential buying pressure that traders en masse are all too aware of should global angst suddenly abate a bit. The fear of missing out, if you will, keeps them engaged...

Well, that's just one theory. Other folks, like Bloomberg's Ven Ram say it could be about simply the rebalancing of portfolios: 
"Equity investors seem to be glossing over several factors in their recent enthusiasm that has sent stocks spiraling, including stagflation and the possibility of a tail risk stemming from the war in Ukraine, Roberto Bagnato of Immobiliare Quadron Srl says in response to my earlier post on the rally.

One possible explanation for this “strange rally” is that large investment and 60-40 funds need to rebalance their portfolios before the end of the quarter, he says, pointing out JPMorgan Chase’s estimate of inflows to the tune of as much as $230 billion."

Perhaps, but, thing is, bonds (the 40% of a 60/40 portfolio) have taken quite the beating this year. TLT and LQD (ETFs that track longer-dated treasuries and corporate bonds) are down 13% and 9% respectively year to date. Looking at the shorter dated stuff, SPTS (short0term treasuries) and VCSH (short-term corporates) are down 2.4% and 4% respectively. So, I dunno... 

Then there's Bloomberg's Felice Maranz who sees stocks as your "classic inflation hedge:"

"Investors looking to offset hotter inflation over the long run can bet on equities. Successful companies can, in theory, maintain profits by lifting the prices they charge customers while grappling with rising costs of their own."

"Wages are climbing -- but not as fast as inflation, showing the power of companies to control what they spend on labor. Plus higher wages may attract more workers, which will eventually ease labor-supply shortages. And more income means consumers have more money to spend. High-end customers are particularly able to weather inflation."
On that one I'll just say Hmm....

Allow me to repeat, equities face serious headwinds going forward... Stay tuned...

Asian equities mostly rose overnight, with 10 of the 16 markets we track closing higher.

Europe's a mess this morning. Only 1 of the bourses we follow is in the green as I type.

US stocks are struggling as well to start the day: Dow down 242 points (0.70%), SP500 down 0.57%, SP500 Equal Weight down 0.85%, Nasdaq 100 down 0.79%, Nasdaq Comp down 0.80%, Russell 2000 down 1.26%.

The VIX sits at 23.34, up 1.74%.

Oil futures are down 4.53%, gold's up 0.55%, silver's up 1.03%, copper futures are up 1.52% and the ag complex (DBA) is up 0.86%.

The 10-year treasury is down (yield up) and the dollar is up 0.21%.

Among our 37 core positions (excluding cash and short-term bond ETF), 15 -- led by base metals futures, energy stocks, MP (rare earth miner), Latin American equities and silver -- are in the green so far this morning. The losers are being led lower by carbon credits, wind stocks, Eurozone equities, semiconductor and bank stocks.

"Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one." 
--Mackay, Charles. Extraordinary Popular Delusions and the Madness of Crowds 

Have a great day!


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