Thursday, March 24, 2022

Morning Note: Minds Wide Open...

So, I keep saying that the US equity market has major headwinds in its face, despite that (via the SP500) it's only off 6.5% year-to-date. Yes, "only!"

Staying with this week's theme, we'll touch once again on the mystery that is a stock market that, for the moment, holds up against the Fed's explicit promise to remove its punchbowl.

I keep saying that it's at least somewhat, and simply, about the fear of missing out on the ultimate Russia/Ukraine resolution. Yes, global equities will like that a lot -- at least for a minute -- I can say with confidence. But, then, the market will have to deal with the notion that the R/U-inspired global angst that might have the Fed keeping a little punch in the bowl will no longer be there.

Makes sense, but, then again, I wonder if "the market" ultimately does not believe that the Fed will indeed pull off 6 more rate hikes along with a, let's call it aggressive, reduction in its balance sheet. I.e., perhaps there's already some (bullish!) discounting of a 2019-style about-face in Fed policy (explained in yesterday's video) in the offing. 

Now the bears say, legitimately, that, with 40-year high inflation, there ain't no way Powell's going to pivot like he did after the 2018 spanking the market gave him for trying to remove the punch. The bulls, on the other hand, say, legitimately as well, that the economy ain't all that healthy right here, and with high inflation, a threatening Fed, and consumer sentiment waning mightily, the data will ultimately have the Fed removing the threat — I.e., playing nice yet again before we know it.

Peter Boockvar's close to his note this morning speaks to the latter:

"...if we assume that consumer spending will begin to slow in response to the squeeze on one’s cost of living and people spend more on necessities and less on discretionary items. That global trade will slow in light of the war and all the pressures on European countries and the slowdown in China. If we assume that after spending $5 Trillion in 2020 and 2021, the US government will dramatically slow its pace of spending. And if we believe that higher interest rates will eventually negatively impact the construction of residential and commercial real estate, the direction of business spending is now crucial. Do companies reign in it in light of the obvious risks or do they continue to invest and think about the long term. Of course, the direction of cash flows will be a key determinant too. I’m not sure of the answer yet but highlight it as hugely important right now as I’ve just checked off the main boxes of GDP."

Now, allow me to turn the bull's assertion on its head with one simple line: "Bullish" in the face of a potentially serious economic slowdown???

Well, that speaks to the "don't fight the Fed" mentality. I.e., if indeed they start easing, it's party back on! 

Well, okay, but, trust me, a recession is an altogether different landscape to traverse!

So, and lastly, our assessment is not presently sounding the alarm on recession risk. That said, and bottom line, rather than being bulls or bears, we remain committed to keeping our minds wide open to all possibilities -- and adjusting accordingly as the landscape shifts... 

Stay tuned...

Asian equities leaned slightly green overnight, with 9 of the 16 markets we track closing higher.

Europe's mostly lower so far this morning, with all but 6 of the 19 bourses we follow in the red as I type.

US stocks are (save for small caps) finding a bid to start the session: Dow up 192 points (0.56%), SP500 up 0.64%, SP500 Equal Weight up 0.62%, Nasdaq 100 up 0.62%, Nasdaq Comp up 0.44%, Russell 2000 up down 0.11%.

The VIX sits at 23.15, down 1.78%.

Oil futures are down 1.27%, gold's up 0.71%, silver's up 2.41%, copper futures are down 0.10% and the ag complex (DBA) is down 0.45%.

The 10-year treasury is down (yield up) and the dollar is up 0.15%.

Among our 37 core positions (excluding cash and short-term bond ETF), 29 -- led by MP (rare earth miner), silver, semiconductor stocks, metals miners and materials stocks -- are in the green so far this morning. The losers are being led lower by base metals futures, uranium miners, solar stocks, Sweden equites and ag futures.

"Tape reading was an important part of the game; so was beginning at the right time; so was sticking to your position. But my greatest discovery was that a man must study general conditions, to size them so as to be able to anticipate probabilities."

--Jesse Livermore 

Have a great day!

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