Thursday, May 19, 2022

Morning Note: History Rhymes

Yesterday's rout, one could say, reflected Walmart's and Target's reportedly ugly state of affairs; shrinking margins, bulging inventories, and so on. But, then again, per our assessment of present conditions, and our video snapshots, odds firmly favor more downside in equities before this year's price action plays itself out.

I.e., retailers are simply reflecting the reality of present general conditions and in the process helping to shake the market loose of those who've been mired in disbelief that, indeed, stocks will go down from time to time. Or, let's say, helping the market along in its quest to construct the inevitable durable bottom. Our view is that we're not there just yet.

Now, with regard to the retailer news, it does add some fuel to the recession argument, which, if it gains some steam, I suspect would have the stock market sniffing out a softer Fed. Any hint that the Fed will tighten less than what's ostensibly priced in could produce one of those major snapback rallies. That said, I must repeat my line from yesterday:

"...let's not hold our collective breaths right here... this Fed needs to gain some credibility -- i.e., show that it doesn't exist solely to support asset prices..."

There's much to explore in this week's data, making for an interesting and informative economic update to come. Given that there are no remaining releases that impact our index, we'll keep this morning's note brief and proceed with our weekly macro analysis, score the index and produce the video later today. We'll include the link in tomorrow morning's note...

Asian equities struggled overnight, with 11 of the 16 markets we track closing in the red.

Europe's down nearly across the board so far this morning, with 17 of the 19 bourses we follow are trading lower as I type.

US stocks are mixed to start the session: Dow down 274 points (0.87%), SP500 down 0.40%, SP500 Equal Weight down 0.37%, Nasdaq 100 up 0.25%, Nasdaq Comp up 0.34%, Russell 2000 up 0.06%.

*Note that US stocks were off significantly more than reported above just a few minutes ago. They then popped a bit on news that existing home sales for April fell to the lowest level since the start of the pandemic. That's what I'm talking about in terms of the market sniffing out a softer Fed when the data comes in weak. But, again, don't hold your breath right here...

The VIX sits at 32.07, up 3.59%.

Oil futures are down 1.13%, gold's up 1.35%, silver's up 2.46%, copper futures are up 1.70% and the ag complex (DBA) is up 0.04%.

The 10-year treasury is up (yield down) and the dollar is down 0.92%.

Among our 37 core positions (excluding cash and short-term bond ETF), 26 -- led by solar stocks, silver, wind stocks, base metals futures and MP Materials -- are in the green so far this morning. The losers are being led lower by consumer staples stocks, energy stocks, Nokia, carbon credits and utilities stocks.

History rhymes:
" was believed that borrowing funds for speculation in rising asset prices was a lot less risky than it had been before the birth of the Federal Reserve System. It was this misjudgment by investors that led, after the stock market party of 1919, to the more painful hangover of 1920–21."
--Russell, Napier. Anatomy of the Bear: Lessons from Wall Street's four great bottoms . 

Have a great day!

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