Morning Note: No Surprise Here -- And -- Funny, that faith in the Fed...

Stocks look to be ending the first half of the year with a dud -- they're trading notably lower in the pre-market. Of course the day is young...

Stock Market Snapshot (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: Dismiss the Doomsayers

The latest consumer sentiment read has folks feeling about as low as it gets with regard to the stock market right here. Now, historically-speaking, that tends to be a contrarian indicator.

Morning Note: Signs

Yes, our conviction remains high that inflation -- well above the past few-decade-average -- is a protracted thing going forward. And, yet, we do see it coming off the boil. Whether in a peaking or a plateauing sense remains to be seen.

A few signs:

Morning Note: Can't go there yet -- And -- Concentrated Cash

In yesterday's economic update we featured a handful of inputs to our index that as of yet don't rhyme with the recession-imminent chorus. This morning's durable goods numbers add another to that list:

Economic and Stock Market Snapshot (video)

If, among other things, market action -- across equities (breadth readings in particular), commodities and fixed income -- is a fair harbinger of things to come, our mid-cycle slowdown thesis is simply wrong. I.e., markets of late — and much of the punditry who stake their claims of predictive prowess on them — are signaling recession is on the near-term horizon, if not already here. 

The fact that our model hasn’t yet placed us there of course doesn’t mean that it won’t very soon. But in that we’re not the least bit interested in being see-we-told-you-so heroes, we’ll simply wait till our work says simply that near-term recession odds trump continued expansion odds. The last time it did was in August 2019; recession followed 5 months later. 

So why doesn’t it now?

Here you go:

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Stock Market Snapshot, the Fed, Goldilocks, Non-Linear Inflation and the Latin America Setup -- all in 13 minutes (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: Political Career Risk Rising -- And -- The Really Good News

Fed Chairman Jerome Powell addresses congress today and tomorrow with his team's current assessment of general conditions and their stance on go-forward monetary policy. 

While, given their all-out commitment (well rhetorically at least) to bringing inflation to its proverbial knees, one wouldn't expect much in the way of equity-market-friendly commentary right here from the Fed-Head.

But, then again, there's the likes of the following 4 charts:

Quote of the Season

The quote below expresses what I cherish as one of the most important lessons I've learned from my decades-long experience (most-humbling at times) as an investor, and advisor:

"...it’s important not to conflate easy heuristics or ideological bias with market outcomes as they frequently diverge sharply."

--Bespoke Investment Group 

Keep this one in mind as your head spins over the coming political season... 

Morning Note: Bear Market Rally Prospects

In yesterday's video commentary I offered a brief technical snapshot of the S&P 500 where the 60-minute chart pointed to the potential for short-term pop higher, plus a number of market indicators/setups that supported the notion that perhaps a "bear market rally" was in the near-term offing.

In case you missed it, here are a few key snippets from the market log I drew from in the video:

Bear Market Rally Prospects (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Economic and Stock Market Update (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: Simmering Setups

So, suffice to say that the Bank of Japan (BOJ), by holding pat, didn't blow anything up overnight (other than [make that "down"]  the yen). But, make no mistake, this is a simmering macro setup that... well... continues to simmer with potentially meaningful global macro ramifications as it plays out.

Morning Note: What Has Traders Fretting Right Here?

So, while that "coiled" feel in the SP500 60-minute chart that we explored in yesterday's video (shot early in the session) appeared prescient later in the day, suffice to say that, while the bounce resumed in early overnight trading (with S&P futures up another 1+%) -- upon the fears, followed by the facts, of foreign central banks hiking their own benchmark rates (Swiss Nat'l Bank for the first time in 11 years) -- well, let's just say that the spring snapped overnight. As I type the S&P is looking to give back nearly all of yesterday's gain at the open (in 45 minutes).   I'll of course wait till the open before penning part 2 (the opening numbers)...

Mid-Week Stock Market Snapshot (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: The Proverbial Inflection Point

So, with history as our guide, the degree to which fed funds futures are pricing in a .75% hike today virtually assures that that's precisely what J. Powell and team will deliver. Now, there are a number of pundits calling for something yet more aggressive, which I'm guessing is a non-starter, and, like I said yesterday, should they go .50%, then that says Monday's meltdown indeed rattled their nerves.

I.e., while indeed a plunging stock market would do some of the heavy lifting for them on inflation, it could also, reflexively-speaking, ultimately be the straw that breaks the economy's back, hence the Fed's potential nervousness... Call it the reverse wealth effect.

Morning Note: Does the Fed Still Have Feelings for Stocks?

In yesterday's note I placed less than 50/50 odds on the Fed raising its benchmark rate by .75% come tomorrow's wrap of their 2-day policy meeting. Well, the market says different.

Morning Note: Quite the week ahead -- And -- "There's thinking, then there's thinking"

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

6/12/2022
This coming week is going to be interesting, to put it mildly!

The calls for a 75bp fed funds hike this week in some circles are becoming deafening, despite the fact that Powell removed that one from the table last month. I suspect he’ll keep his word going forward and – assuming inflation remains slow to abate – opt for a longer string of 50bp bumps than previously expected.

Economic and Stock Market Snapshot (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: More On Those Underlying Forces

Well, nope, (headline) inflation did not peak in April after all, with May's headline print coming in at 8.6%, versus April's 8.3%. Ex out food and energy and "core" inflation came in at 6.0, which actually was a titch lower than May's 6.2%. 

While indeed stocks might've rallied on tamer numbers (they're falling as I type), and while I suspect we remain very close to peak inflation for this cycle, as we've stressed, the notion that it'll get to a level (without, that is, a near-term inflation-crushing recession) anytime soon that would have the Fed backing off is, in our view, quite the faulty notion. I.e., any such rallies in equities (and they will come, rest assured) given the present setup, and at present overall levels, would be, in our view, rallies to fade.

Morning Note: Those Starving Retailer Castaways...

That positive turnaround action threatened by yesterday's early session didn't play out, as, ultimately, stocks gave way to notable downward pressure. That ugly breadth reading I touched on in the video commentary turned out to be telling after all. 

Stock Market Snapshot (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: Underlying Forces

As mentioned in yesterday's note, and as I'll illustrate shortly in our mid-week market snapshot video, our base case remains that the ultimate bottom for the equity market's malaise has yet to be explored.

However, at the moment, our economic base case remains that the next US recession will likely not be a 2022 affair.

Of course our base cases are subject to change as this all plays out going forward.

Morning Note: Rate hikes, QT, no more QE, yada yada...

Events in Asia -- specifically, the Australian central bank surprising with twice the anticipate rate hike, and a pledge to maintain diametrically-opposed to that policy in Japan (seeing the yen to a 20-year low) -- the former in particular, was felt in the overnight trading action, inspiring a notable dip in global equity futures.

Morning Note: China, Equities and Oil

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

6-5-2022
Our expectations around the Chinese setup seem to be playing out. That being a relaxing of covid restrictions and the implementation of significant stimulus – leading to Chinese equity outperformance and a bid under industrial commodities into the second half of the year. Strong political incentive makes this a likely scenario.

Quote of the Day: Dangerously lulled...

As clients know, our assessment of go-forward general conditions, alas, jibes -- in a it's-different-this-time sense -- with the following from one of today's most thoughtful macro commentators, Grant Williams (the featured guest in the latest global macro addition of the Top Traders Unplugged podcast):

"Now, it's going to be a terrible, terrible, time for retail investors who are used to passive and are buying the Cathie Wood stories and are buying all these wonderful stories about progress and technology and 50% returns."

"...you're going to see things happen I suspect in the next 5 to 10 years that most people who've come late to markets over this last couple of years of kind of frenzied speculation think are either impossible or when they happen completely unfair. And they'll want someone to step in and fix it for them..."

While, indeed, we firmly believe that the next several years (if not decades) will produce a vastly different set of challenges and opportunities than folks have grown accustomed to, we do believe that the opportunities will be profound, just different and unexpected -- and I suspect grossly unexploited by the retail investor who's been lulled by what they've come to believe (ultimately ill-conceived) about how markets, and economies, work...

Economic and Stock Market Snapshot (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: Under the Surface

This morning's headline jobs number came in better than expected, while the "internals" (distribution across sectors, hourly wages, participation rate, unemployment rate, etc) were close enough to expectations to not budge the needle with regard to Fed policy the next few months.

Morning Note: Recession Risk Remains Low, But Still Not a Good (Equity) Market Setup Right Here...

While we're not due to perform our deep weekly economic dive till tomorrow, I thought I'd go ahead, with the help of Bespoke Investment Group, and highlight 3 not-small releases from yesterday.

Stock Market Snapshot (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: Obsession

In yesterday's note I mentioned that this week is not-small in terms of data releases. Given that the market obsession is ultimately over the Fed, and that the Fed's obsession has to be ultimately with the overall state of the economy, well, data surprises (along with Fed-commentary) will indeed move markets -- more than "usual", I suspect, as things shake out...

Today, for example, we'll get the reads from the ISM US Manufacturing Survey, job openings, speeches from Fed-heads Williams and Bullard and the Fed's Beige Book (the local state of economic affairs as reported by each Fed branch). The Fed speeches in particular could inspire notable intraday moves, in either direction.

I pointed out in last week's economic update that part of the narrative among economists who remain sanguine about the present state of affairs is the massive amount of savings ($2+ trillion) that presently rests on consumer balance sheets. Per the following from BCA research, those savings are either very concentrated, or are being closely guarded for the time being. I'm guessing the former:

"Excess savings may help achieve the “soft landing.” However, there are early signs that either many lower-income Americans have spent the money, or their savings accounts are earmarked for a rainy day, and many people aim to spend only what they earn.

Higher-income Americans are still willing to spend, but this group is shifting spending away from goods and towards services, which is consistent with strong results from the US airline carriers, which report a significant gain in pricing power. A similar message came from both Nordstrom and Macy’s. Clearly, American consumers are highly heterogeneous, and there is a significant bifurcation between “haves” and “have nots.”

It is, however, concerning that many of the wealthier Americans have lost a significant percentage of their nest eggs in the stock market. The theory goes that the wealth effect is one of the main mechanisms through which monetary tightening affects consumer demand. It stands to reason that it is only a matter of time (unless the stock market rebounds) before even the wealthier cohorts start tightening their belts, dampening demand for consumer services."

While we sympathize with the above narrative, and while growth has clearly slowed, our present base case remains that the US sidesteps recession in 2022... Of course that is subject to change based on the facts, as they emerge, going forward.

Yesterday's equity market delivered a choppy session characterized by ugly breadth (even when the SP500 was green its losers notably outpaced its gainers). We'll see if this is just a pause in this snapback rally, or if that's all we get. The SP500 is in the green as I type, although, once again on some pretty stinky breadth (over half of the SP500 and 60% of the Nasdaq Comp members are presently in the red). Hmm...

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

Europe attempting to bounce off of yesterday's drubbing, with 12 of the 19 bourses we follow trading up as I type.

US stocks are mixed to start the session: Dow up 29 points (0.09%), SP500 up 0.30%, SP500 Equal Weight down 0.33%, Nasdaq 100 up 1.02%, Nasdaq Comp up 0.98%, Russell 2000 down 0.09%.

The VIX sits at 25.55, down 2.44%.

Oil futures are up 2.15%, gold's up 0.50%, silver's up 1.44%, copper futures are up 0.86% and the ag complex (DBA) is up 0.59%.

The 10-year treasury is down (yield up) and the dollar is up 0.50%.

Among our 38 core positions (excluding cash and short-term bond ETF), 22 -- led by energy stocks, silver, Disney, communications stocks and AMD -- are in the green so far this morning. The losers are being led lower by Albemarle, Dutch Bros, healthcare, consumer staples, materials and financial stocks.

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

Have a great day!
Marty