Wednesday, April 27, 2022

Morning Note: When "big price changes occur"

Just going to muse a minute on US stocks for this morning's note.

We've been maintaining for months now that the equity market (all participants in the aggregate) simply hasn't taken the Fed at its word... Considering valuations, how instrumental the Fed was in getting us here, yada yada, the notion that central bankers are in the mood to take actions that would seriously tighten financial conditions, and crack the stock market in the process, seems virtually implausible -- as it is such a departure from what we've come to know about this Fed these past many years.

Yeah, but, then again, they're staring down inflation prints the likes of which haven't been seen in 40 years. And despite all of the retail activity we may be seeing when we're out and about, the consumer surveys say folks aren't happy (inflation) and it's hitting political approval ratings hard.

So, the top-down incentives for the moment have shifted. It's all about fighting inflation, and, frankly, a falling stock market -- in and of itself -- would be a tightening of financial conditions; potentially aiding them in reaching their objective.

Now, all that said, when push comes to shove, and stocks are shoved meaningfully lower (btw the presently 12% year-to-date hit to the S&P 500 is not nearly "meaningful" in the historical scheme of things), honestly, ultimately, I am with the crowd on this; I do indeed think the Fed will reverse course if and when stocks move "meaningfully" lower.

I'll put out a market snapshot video sometime today and take another look at what the charts suggest in terms downside risk right here.

Asian equities (save for China) took a hit overnight, with 12 of the 16 markets we track closing higher.

Europe's leaning slightly green this morning, with 10 of the 19 bourses we follow trading up as I type.

US stocks are a bit mixed to start the session: Dow up 38 points (0.11%), SP500 up 0.30%, SP500 Equal Weight up 0.07%, Nasdaq 100 up 0.14%, Nasdaq Comp up 0.20%, Russell 2000 down 0.42%.

The VIX sits at 31.61, down 5.85%.

Oil futures are down 0.80%, gold's down 0.75%, silver's down 0.15%, copper futures are down 0.09% and the ag complex (DBA) is up 0.21%.

The 10-year treasury is up (yield down) and the dollar is up 0.81%.

Among our 39 core positions (excluding cash and short-term bond ETF), 19 -- led by solar stocks, tech stocks, Sweden equities, Albemarle and MP Materials -- are in the green so far this morning. The losers are being led lower by carbon credits, AT&T, Nokia, Disney and gold.

"If you live in a world where everyone assumes that everything goes up forever, then it is inconceivable that prices might go down. Big price changes occur when market participants are forced to reevaluate their prejudices..." --Colm O'Shea

Have a great day!

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