Morning Note: The Tilt

While seasonality continues to support the bulls right here, one has to wonder if it can indeed hold up through Christmas -- given generally weakening conditions, souring consumer sentiment, and a Fed narrative that remains notably more hawkish than market actors, in the aggregate, seem to believe credible, on, say, a 7-month time horizon.

While, given our own present assessment of general conditions, I sympathize with the notion that the Fed will be forced to soften notably (whether that means a rate cut is the question) over the next several months, if Fed members hold their ground on what they’ve been suggesting in their respective speeches, “the market” will, in the meantime, likely grow to doubt itself and succumb to the notion that valuations will need to take another leg lower, amid a stubbornly high policy rate, ongoing QT (sucking back liquidity),  and disappointing corporate earnings.

Make no mistake, every word of today’s Brookings speech by Chairman Powell will be watched and traded as its delivered!

Then, tomorrow comes the Fed’s favored inflation measure (PCE), followed by Friday’s jobs report… I look for fireworks (good or bad) for the rest of the week.

In terms of the tilt (up or down), well, it’s a very tough call… The market has enjoyed the promise of a 50 bp rate hike come December 14th, versus the 75 that was previously priced in, along with the assurances from Fedheads that, data allowing, they’re willing to continue to lessen the interest-rate-hike pace going forward… Thing is, in the same breath they also promise to go longer and hold higher than, clearly, “the market” would like, or is presently discounting… So, if the softer language is fully priced in, and if it’s repeated by Powell today, one might surmise that “the market” may now be ready to focus on the second part of that same-breath narrative… Which won’t be pretty.

Call that an observation, as opposed to a prediction... Like I said, seasonality remains positive, and Powell, for example, could throw the market a bone right here.


Asian equities rallied overnight, with 15 of the 16 markets we track closing higher.

Europe's green as well so far this morning, with 16 of the 19 bourses we follow trading up as I type.

US stocks are mixed to start the session: Dow down 28 points (0.08%), SP500 up 0.10%, SP500 Equal Weight down 0.16%, Nasdaq 100 up 0.43%, Nasdaq Comp up 0.45%, Russell 2000 down 0.23%.

The VIX sits at 22.15, up 1.19%.

Oil futures are up 3.55%, gold's up 0.61%, silver's up 2.96%, copper futures are up 3.23% and the ag complex (DBA) is up 0.57%.

The 10-year treasury is up (yield down) and the dollar is down 0.42%.

Among our 36 core positions (excluding options hedges, cash and short-term bond ETF), 25 -- led by silver, base metals futures, MP Materials, Dutch Bros and emerging market equities -- are in the green so far this morning. The losers are being led lower by treasuries, financial stocks, AT&T, industrial stocks and Disney.

Again, it's all about underlying conditions:

"...the origin of crashes is much more subtle than often thought, as it is constructed progressively by the market as a whole, as a self-organizing process. In this sense, the true cause of a crash could be termed a systemic instability."

--Sornette, Didier. Why Stock Markets Crash

Have a great day!
Marty