Wednesday, April 20, 2022

Morning Note: Eyeballing Bonds Right Here

Here's yesterday's entry to our internal market log:

Strong equity rally today, despite notably growing bearishness among the “smart money.” Breadth is outstanding, although volume is notably weak.

Doesn’t appear to be any market-pumping headline out of the Fed.

Searching for the prevailing narrative, I came across the following on Bloomberg:
10 Reasons Why Stocks Are Roaring Today

(Bloomberg) -- Stocks are roaring despite rising bond yields. Here are some reasons for the rally on this turnaround Tuesday:

* Retail accounts are buying today

* Tax-day selling done

* Banks can start their buybacks with earnings out of the way

* Overly bearish sentiment has finally washed itself out

* Investors have been placing too much emphasis on risk of recession

* Some rotation out of energy into beaten up sectors (IT) that are reportedly under-invested

* Robust consumer demand

* Oil down

* US stocks benefit from a bit of safe-haven status on inflation concern

* The bounce into the close Monday, amid a low market-on-close imbalance after last week’s option expiration, foretold an up move.
All points worth considering, however, I’m thinking it’s more about the morning news that the IMF is ratcheting down its global GDP projection for this year, which has enough market participants – amid weak overall volume – thinking that go-forward conditions will be such that central banks (the Fed especially) won’t have to make good on their more aggressive tightening threats…

While, sure, that would be short-term bullish for stocks, if, however, inflation persists – keeping the Fed in relative tightening mode – and conditions weaken (read stagflation), that’s a decidedly bearish setup for equities.

Bonds, on the other hand, particularly emerging mkt bonds (EMB) look attractive under such a setup – as a number of EM central banks have been aggressively tightening for months.

US treasuries (TLT) are interesting here as well. I.e., as the Fed raises interest rates against a slowing macro backdrop, the long-end of the curve would likely rally (yields decline), particularly coming off of what is a historically-weak start to the year.

We’ll take a serious look at scaling into both EMB and TLT going forward…

Asian equities leaned green overnight, with 10 of the 16 markets we track closing higher.

Europe's rallying this morning, with all but 2 of the 19 bourses we follow trading up as I type.

US stocks are mixed to start the day: Dow up 157 points (0.47%), SP500 up 0.06%, SP500 Equal Weight up 0.39%, Nasdaq 100 down 0.76%, Nasdaq Comp down 0.65%, Russell 2000 up 0.41%.

The VIX sits at 20.60, down 3.60%.

Oil futures are up 0.71%, gold's up 0.08%, silver's down 0.09%, copper futures are down 1.55% and the ag complex (DBA) is down 0.16%.

The 10-year treasury is up (yield down) and the dollar is down 0.49%.

Among our 38 core positions (excluding cash and short-term bond ETF), 20 -- led by carbon credits, AMD, SOXX (semiconductor ETF), Eurozone equities, water stocks and Sweden equities -- are in the green so far this morning. The losers are being led lower by PARA (exited the position this morning), Disney, MP Materials, oil services and solar companies.

Here's a bit of a quote-fest taken from our technical research spreadsheet:
"I can't tell you how it came to take me so many years to learn that instead of placing piking bets on what the next few quotations were going to be, my game was to anticipate what was going to happen in a big way." -- Jesse Livermore

"The best possible investment situation is when market conditions provide both investment merit and speculative merit -- a combination of undervaluation, price compression, and early improvement in market internals." --John Hussman

"Stability leads to instability. The more stable things become and the longer things are stable, the more unstable they will be when crisis hits." --Hyman Minsky

 "When the facts change, I change my mind." --Keynes

Have a great day!

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