Thursday, June 30, 2022

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...

I did notice that upon the 5:30am pt release of personal consumption data, that showed inflation and spending coming in slightly below expectations, that stocks retraced about a half-percent of this morning's decline. However, as I type, they've taken most of that back.

The ISM Manufacturing Survey -- another meaningful data point right here -- results are on deck at 7am tomorrow morning; based on what we've seen of late from the regional reports, it could disappoint. Ironically, if it's bad enough stocks may actually like it, as the market would expect (well, hope) that the Fed will sit up and take notice.

Regardless, further declines in stocks should come as no surprise to regular readers/viewers.

Here's from yesterday's video commentary, where, after noting that one of our premium research sources paints a seasonally-optimistic picture for stocks rolling into July, I stated:

"I don't really sympathize with that at this point, given lots of factors; where the market is, where the Fed is, the potential for earnings estimates to get sorely disappointed in the weeks and months to come, which would suggest that Wall Street will probably start ratcheting down those earnings estimates -- that can be ugly for stocks... So I'm sitting here thinking, once we start moving into July these other factors could very well overwhelm any potential buying pressure."

"Now, again, this is short-term stuff, and I do think it's important for us to help clients gauge their short-term expectations, and gain some understanding of some of these underlying factors that really have to do with positioning, and short-term trading, and so on -- so we don't draw what would be the wrong conclusions about the volatility and where it's coming from. Which, thus, allows us to keep our long-term perspective and continue to find and exploit the opportunities in every setup. And this one we think is unique and special, in some regards, when you have, say, a 5+-year outlook. It's just that you gotta get through the volatility along the way, and be very very patient."

And here's from my musings last evenings in our internal market log:

6/29/2022

Me thinking about the Fed, Fed policy, Fed commentary, Fed conviction, and so on. I’m finding it ironic how my recollection of popular opinion – as inflation was coming to life – was that the Fed’s dovish leanings would prevail ad infinitum and that they’d, therefore, remain sorely behind the curve – ready to bail out the equity market at the first sign of, say, double-digit trouble. Their troubling “it’s transitory” conviction in the face of mounting structural evidence certainly lent credence to that opinion…

And while one might argue that the Fed has not turned hawkish enough at this point to catch up to inflation, the general consensus seems to be that they’re now hiking/tightening into an economic slowdown, and, thus, are going to seriously break something before they're through…

Interesting how there seems to be this general opinion that the Fed has sprouted some newfound tenacity and is willing to crush markets in order to crush inflation…

Well, I get it… I mean, sure, we’re staring down 40-year high inflation prints and consumer confidence is utterly in the gutter, because of said inflation… So, it makes sense that the Fed has decided not to roll its proverbial stock market put, and, again, is now willing to allow the equity (and, not to mention, the credit) market to crash as it may… right?

Well, yeah, I guess… but, then again, no! I mean, fool me twice, shame on me…

To expect the Fed to hold its ground and fight inflation to the bitter end of a potential recession is no different than previously anticipating that they’d stay uber dovish in the face of decades-high inflation…

Makes much better sense to anticipate that they’ll remain hawkish only as long as markets allow (or they can stomach, which, granted, has to be lower than usual given the inflation setup)… I suspect in the not too distant future we’ll have inflation enough off the boil (though not nearly down to their 2% target), and markets enough off their highs, to see the Fed step in with, at a minimum, what I’ll call a reduced-tightening loosening of monetary policy (call it “forward guidance”)…
The equity market will love it, but I’m afraid it’ll love it from levels lower than here… Significantly lower if we’re talking recession…
Stay tuned...


Asian equities continued to sell off overnight, with 13 of the 16 markets we track closing lower.

Same for Europe so far this morning, with 15 of the 19 bourses we follow trading down as I type.

US stocks are struggling to start the session: Dow down 429 points (1.38%), SP500 down 1.19%, SP500 Equal Weight down 1.26%, Nasdaq 100 down 1.33%, Nasdaq Comp down 1.39%, Russell 2000 down 1.53%.

The VIX sits at 29.23, up 3.80%.

Oil futures are down 1.82%, gold's up 0.03%, silver's down 0.78%, copper futures are down 1.77% and the ag complex (DBA) is down 0.39%.

The 10-year treasury is up (yield down) and the dollar is up 0.09%.

Among our 38 core positions (excluding options hedges, cash and short-term bond ETF), only 5 -- treasury bonds, AMD, carbon credits, solar stocks and gold -- are in the green so far this morning. The losers are being led lower by MP Materials, Sweden equities, base metals futures, our Eurozone equity ETF and Dutch Bros.

"The capacity to manage risk, and with it the appetite to take risk and make forward-looking choices, are key elements of the energy that drives the economic system forward."

--Bernstein, Peter L.. Against the Gods (p. 3). Wiley. Kindle Edition.

Have a great day!
Marty

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