Friday, November 18, 2022

Morning Note: Key Highlights

Here are some key highlights from the past week of messaging herein:

From yesterday:

In yesterday's Wall Street Journal, James Mackintosh pounded home the notion that the Fed indeed does not relish market rallies right here.

From his article titled Markets Zoom Toward Collision With the Fed:    emphasis mine...

"Investors are betting big that the Federal Reserve will be able to ease off its fight against inflation. The Fed needs to push back to prevent the markets prematurely easing on its behalf.

From Wednesday:

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:

"Target saw sales decline as families contended with higher prices, making trade-offs between what they need and what they want – a potential warning sign for the holiday shopping season. Target Chief Growth Officer Christina Hennington said customers’ price sensitivity intensified during the last two weeks of October.

“It was a precipitous decline and, frankly, we’ve seen those trends in the early part of November as well,” she said on a call with reporters."

As a slowing economy -- which jibes with our present go-forward thesis -- is what the Fed doctors are ordering to slow the pace of inflation.

From Tuesday:

Last Thursday’s monster rally may have pulled forward a good chunk of what’s left of Q4’s rally… The fact that today’s advance couldn’t hold despite Brainard and last evening’s bullish news around China’s property sector says US stocks may have gotten a bit ahead of themselves right here… The next week or two will be telling.

From Monday:

On another note, Sam went on to ask the following:

"What would happen to the world market, to oil, to the Euro market, and to US equities if there were the negotiation of a peace deal between Russia and Ukraine in 2023?"

My reply:

"Safe to say that, initially, we'd see a sharp decline in the price of commodities, oil and wheat in particular, and a rally in both equities and debt... Beyond "initially" things would settle back, and again reflect the long-term structural realities of today..."

And I did mean global equities and debt. 

From last Friday:

Nassim Taleb in his amazing must-read book The Black Swan was spot on:

"The problem is that our ideas are sticky: once we produce a theory, we are not likely to change our minds—so those who delay developing their theories are better off.
When you develop your opinions on the basis of weak evidence, you will have difficulty interpreting subsequent information that contradicts these opinions, even if this new information is obviously more accurate.
Two mechanisms are at play here: the confirmation bias that we saw in Chapter 5, and belief perseverance, the tendency not to reverse opinions you already have. Remember that we treat ideas like possessions, and it will be hard for us to part with them.

Please, don't let that be you! 

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

Europe's up so far this morning, with 15 of the 19 bourses we follow trading higher as I type.

As are US stocks, to start the session: Dow up 110 points (0.33%), SP500 up 0.38%, SP500 Equal Weight up 0.68%, Nasdaq 100 up 0.32%, Nasdaq Comp up 0.37%, Russell 2000 up 1.03%.

The VIX sits at 23.58, down 1.46%.

Oil futures are down 3.96%, gold's down 0.55%, silver's down 0.38%, copper futures are down 1.14% and the ag complex (DBA) is up 0.05%.

The 10-year treasury is down (yield up) and the dollar is up 0.15%.

Among our 36 core positions (excluding options hedges, cash and short-term bond ETF), 21 -- led by Dutch Bros, Nokia, utilities stocks, water stocks and financial stocks -- are in the green so far this morning. The losers are being led lower by energy stocks, MP Materials, uranium miners, base metals miners and emerging market equities.

"Acceptance or denial does not alter a fact nor will reason bring about a necessary impact. What does is "seeing" the fact. There's no "seeing" if there is condemnation or justification or identification with the fact."

--Jiddu Krishnamurti 

Have a great day!

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