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Before you go celebrating the higher (record breaking!) retail sales numbers for this holiday season vs last, know that we're talking nominal, as opposed to real, terms (i.e., not counting vs counting inflation).
As I stressed in Friday's video (worth watching), while we're open to the notion that a new bull market is in the near-term offing, it's still not our base case, per the general conditions backdrop and the technical indicators I continue to illustrate.
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This week's "Flash" (preliminary) Composite Purchasing Managers reading dipped further into contraction territory, supporting our thesis that odds favor recession vs continued expansion in the coming months.
"Business surveys released Wednesday pointed to declines in output across the U.S. and Europe’s largest economies in November. But the figures and other economic readings pointed to a mixed outlook, with some parts of both economies continuing to show resilience despite high inflation and rising interest rates.
In China, the world’s second-largest economy, the outlook is highly uncertain as the country faces a surge in Covid-19 cases. Economists expect a rebound in growth next year as Beijing attempts to ease tough pandemic policies.
A tight U.S. labor market and still strong household balance sheets are supporting consumer spending, the economy’s main engine. A healthy consumer helped power retail sales in October and could keep the world’s largest economy growing at the end of this year. The U.S. outlook depends in part on how it weathers the Federal Reserve’s interest-rate increases aimed at cooling inflation that is running near a 40-year high.
Europe is experiencing less economic disruption from Russia’s decision to limit energy supplies than analysts earlier feared. Many households and businesses in the region are adapting by, for instance, cutting back on energy consumption, said Adam Posen, president of the Peterson Institute for International Economics. European governments also distributed larger-than-anticipated sums of fiscal support to households to help address rising energy and food costs, he added.
“We’re going to end up with more than 75% of the world’s economy actually doing pretty well,” Mr. Posen said. The U.S. and European Union “are likely to have relatively short, not terrible recessions and return to growth possibly by as early as the fourth quarter of 2023.”
This morning's message comes to you by way of video... My monologue on current conditions takes up the bulk of the presentation, although pay close attention to my volume analysis on the daily chart, as it presents a picture somewhat at odds with the price action of this very nice Q4 rally to this point.
All of us here at PWA wish you and yours the best of Thanksgivings!
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In yesterday's note I casually offered up 5 reasons for bulls to be, well, bullish on equities right here, I then proceeded to turn each on its head to justify a bearish stance... With regard to the bull's narrative, clearly, the presently most telling aspect is the somewhat softer tone emerging from Fedheads of late.
Question then being, are traders prudent in bidding up stocks based on, for example, the Fed walking back its earlier threats to hike by .75% come December 14th?
Anybody looking for signs that the worst is over for stocks can indeed find what they're looking for:
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In yesterday's note I quoted myself from Tuesday's note... Now, here's me, today, quoting myself quoting myself from yesterday:
"In yesterday's blog post I suggested that the Fed isn't quite yet ready to welcome, nor support, rallying markets:"It’ll be interesting to see (amid softening inflation reads) the degree to which Fedheads push back against what amounts to a market-induced loosening of financial conditions.""
In yesterday's Wall Street Journal, James Mackintosh pounded home the notion that the Fed indeed does not relish market rallies right here.
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In yesterday's blog post I suggested that the Fed isn't quite yet ready to welcome, nor support, rallying markets:
"It’ll be interesting to see (amid softening inflation reads) the degree to which Fedheads push back against what amounts to a market-induced loosening of financial conditions."
News from Target this morning, however, is, frankly, what the Fed is after:
Last night's log entry:
11/14/2022
I listened to all of Lael Brainard’s Bloomberg interview today… As expected she was notably dovish relative to several other Fed members, including Powell… The equity market action (up) while she was talking confirmed her relatively accommodating tilt… Nevertheless, stocks rolled over late in the session, closing notably lower.
My dialog yesterday evening with our well-tutored, deep-thinker on markets, on the economy and on history, friend/client Sam is timely and instructive enough to use as this morning's main message.
Sam offered up an accurate depiction of the rate environment of the late-70s/early-80s:
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While skimming financial gurus' postings on twitter last night, I -- and please pardon my condescension -- found it somewhat comical reading the bears angry, if not disdainful commentaries with regard to yesterday's incredible rally, alongside the celebratory sermons of the bulls.
11/09/2022
Today’s equity market drubbing, if one believes the headlines, was more about an implosion in crypto than it was about looming uncertainty over mid-term election results.
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As you'll see if you catch this morning's yet to be produced technical update video, the short-term setup for stocks is a little suspect right here.
As for sentiment, traders and investors, on balance, lean somewhat more positive than they were, say, early October, which, frankly, is having me a bit short-term hesitant right here... Although the latest scoring of our own fear/greed barometer still reads net fear, which, in a contrarian sense, is still net bullish.
While markets await mid-term election results tonight/tomorrow/?, and CPI on Thursday, I'm thinking today's a good day to touch on some key highlights from our recent messaging herein:
Friday saw quite the rally, particularly in asset classes and regions that sit prominently in our core portfolio mix.
While the jobs number was billed to be a big needle-mover come last Friday, the rally -- across primarily commodities and foreign equities -- in our view can be mostly explained by persistent rumors that China is diligently crafting a plan to exit its economy-stifling "covid-zero" policy over the next few months.
Well, at a press conference Saturday, Chinese health officials pushed back aggressively by vowing to "unswervingly" stick to the country's zero covid approach.
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Interesting action yesterday... While listening to the official statement issued along with the announcement that the Fed funds rate will be bumped by .75%, Nick and I agreed that stocks should indeed be rallying, as they were at that moment.
Reason being this (new) language in the statement:
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Here's from last month's post where I reported on the then score of our "PWA Equity Market Conditions Index."
So, what to write about on day-1 of the Fed policy meeting?
How about p/e ratios relative to interest rates, or interest rates relative to inflation, or earnings prospects relative to recession risk, or mild recession risk vs deep recession risk, or interest rate differentials among countries vs their respective currencies (and if that's forever the be-all-end-all of what drives them), or the fact that Powell can't do a Volcker given the present-day debt setup, or that the Fed can't slay inflation without hiking rates significantly higher, or the fact that the Fed can't raise rates significantly higher without seriously breaking something in the credit markets (again, can't be Volcker), and, by extension, the equity markets, or yada, yada and yada.
