Friday, April 22, 2022

Morning Note: Hedge Your Bets Right Here -- And -- "Let's Understand What Is"

In last Thursday's note I stated:

"Clearly, the equity market (players in the aggregate) still doubts the Fed’s stated resolve. I.e. The extent of the tightening they’re threatening is simply not fully discounted in stock prices."

Per his comments yesterday in a RealVision interview, researcher Jim Bianco concurs: 

"The Fed is looking at the fed funds futures and going "okay 14 rate hikes." Jim Bullard; "yeah the market is pricing in what we want to do." Yes, but equity traders are not; they don't believe you're going to ultimately do that. And that's where the rub is in this market."

Yesterday was a case in point: US stocks were rallying nicely in the session until Fed Chair Jerome Powell, participating in an IMF panel discussion, per Bloomberg, "reinforced market expectations and comments from other Fed officials for a half-point rate hike" at the upcoming May meeting. In his words the labor market is "too hot."

Again, in our view, those "market expectations" would be reflected in fed funds futures, but not, as of yet, in equity prices.

The notion that equity market players remain ill-advisedly sanguine -- or, frankly, living in denial -- was evident in this morning's note from one of our premium research providers:

  • "While there was lots of Fedspeak, Chair Powell said nothing particularly notable today, and selling was consistent both before and after his comments made to an IMF conference at 11:00 AM and 1:00 PM ET. 
  • St Louis Fed President Bullard continued his absurd advocacy for a 75 bps rate increase, and Fed Funds futures have fully priced that move for June, but we are deeply skeptical that the Fed would take that large of a step given inflation has stopped accelerating and may be rolling over."

I sense denial in paragraph 1, and disgust, along with denial, in paragraph 2.

Funny thing is, I sympathize with the notion that the Fed may indeed ultimately pivot away from its most aggressive threats, but not until something(s) seriously cracks. That something, or one of those somethings, may very well end up being the equity market... I.e., hedge your bets right here!

Asian equities leaned red overnight, with 10 of the 16 markets we track closing lower.

Europe's taking a hit this morning, with all 19 of the bourses we follow trading down as I type.

US stocks (save for tech) are feeling pain this morning as well: Dow down 357 points (1.03%), SP500 down 0.65%, SP500 Equal Weight down 0.79%, Nasdaq 100 up 0.14%, Nasdaq Comp up 0.13%, Russell 2000 down 0.33%.

The VIX sits at 23.35, up 2.95%.

Oil futures are down 1.46%, gold's down 0.43%, silver's down 1.49%, copper futures are down 1.04% and the ag complex (DBA) is down 0.66%.

The 10-year treasury is up (yield down) and the dollar is up 0.40%.

Among our 39 core positions (excluding cash and short-term bond ETF), 15 -- led by solar stocks, carbon credits, oil services companies, MP Materials and AMD -- are in the green so far this morning. The losers are being led lower by Verizon, AT&T, healthcare stocks, silver and materials stocks.

Per the above, we humans tend to rail against situations/conditions that don't jibe with what we view as the ideal. Thing is, when it comes to investing, we absolutely have to set that aside and simply see the world for what it is... and act accordingly.

"See things as they are, observe. I live in disorder, and I try to seek order. That is, to change what is to what should be, and that may be the cause of conflict."

"The ideal is non-existent, is non-fact, what is is a fact. So let's understand what is."

--J. Krishnamurti 

Have a great day!

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