Thursday, November 10, 2022

Morning Note: Acute Myopia and Acute FOMO

Last night's entry to our internal market log:

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.

While lack of liquidity expressing itself in any asset class can indeed ripple through the price of others, I don’t suspect that a failed rescue takeover in the crypto space, as big a deal as it is, will ultimately be looked back upon as the straw that finally broke the equity bear market’s back.

Volatility of late, in my view, is more about the acute myopia that afflicts today’s trader… One minute it’s all about the positivity of the season and the presumed positivity of political gridlock, the next it’s about getting in front of a hot CPI* print that could see October’s gains given up in a New York minute, and the presumed negativity of gridlock when we’re facing the prospects of recession and, not to mention, debt ceilings.

With regard to recession risk, while indeed gridlock could severely hamper fiscal intervention, the fact that we’d be entering a contraction amid generally high interest rates has me thinking that the tailwind created by Fed easing could serve as quite the buffer against something potentially ugly to the downside.

The second half, or even perhaps the last 3 quarters of 2023, could, therefore, be special for global equities, particularly if, going in, we find ourselves plumbing a recession’s bottom that will have indeed broken the equity bear market’s back.

Bottom line: As our present thesis suggests (post whatever Q4’s rally has left in it), odds going forward favor a mild contraction, a break below our initial SP500 downside target of 3,500, and then a durable bottom forming during the first half of next year... Although, I have to say that the odds of a soft-bottom (and our 3,500 target holding) have been increasing a bit of late -- given the relative health of the consumer and the potential for positive international developments (the ending of China's "zero covid" policy, Europe emerging from recession, to name two).

*Interesting, ahead of tomorrow’s CPI report,  that, as I type (9:45pm), bonds are rallying, the dollar’s declining and US equity futures are catching a bit of a bid... Traders appear to be anticipating a soft inflation print come tomorrow morning.

Well, indeed, traders had it right overnight, as you'll see below. 

What's represented in these dramatic moves is what you might call panicky buying, as, clearly, a not-small number of traders have been lounging on the short side of the boat... And of course, as for the rest, you can call it acute FOMO (fear of missing out).

Asian equities tanked overnight, with 14 of the 16 markets we track closing higher.

Europe, responding to US's "soft" CPI print is in rally mode so far this morning, with 15 of the 19 bourses we follow trading up as I type.

US stocks are bigly green to start the session: Dow up 784 points (2.41%), SP500 up 3.50%, SP500 Equal Weight up 3.58%, Nasdaq 100 up 4.60%, Nasdaq Comp up 4.62%, Russell 2000 up 4.29%.

The VIX sits at 23.70, down 9.60%.

Oil futures are down 0.27%, gold's up 2.09%, silver's up 3.07%, copper futures are up 2.43% and the ag complex (DBA) is down 0.08%.

The 10-year treasury is up (yield down) and the dollar is down a huge 1.93%.

Among our 35 core positions (excluding options hedges, cash and short-term bond ETF), 33 -- led by Amazon, AMD, Dutch Bros, Sweden equities and tech stocks -- are in the green so far this morning. The 2 losers this morning are ag futures and Brazil equities.

"Like oil and water, politics and investing don’t mix, and you should never let your political ideology cloud your investment decisions.
Relative to yesterday, very little has changed. The Fed is still aggressively hiking rates, the economy is weakening, and the stock and bond markets are at the tail end of one of their worst years in history."

--Bespoke Investment Group closing note 11/8/2022 

Have a great day!


  1. FOMO Indeed! There is nothing change fundamentally with headwinds facing the market. In fact, we still have the unsettled election results, inflation is still high, Powell may not pivot, macroeconomic uncertainties are still there, the bar for corporate earnings is reduced and revised multiple times, the possibility of recession is still concerning when you have massive layoffs, and on and on...I still believe your ANALOG comparing 1980-1981 to the 2022-2023 is still very reasonable. Thanks again for the great analysis!

    1. All valid points for sure Sam! And, as I know you know, when it comes to the economy and to markets, there are countless moving parts, so we have to stay open to all possibilities...

    2. Thanks Marty! I learn a lot from you and Nick this year. I learn a very valuable lesson that it is not easy to earn $1 from the market. Like you said, there are countless moving parts, including, in my opinion, substantial manipulations, in the market.

    3. And I love your passionate, deep-thinking on all things market and the economy Sam! I value your input.