Morning Note: Equity Market Conditions Remain Negative

According to the latest scoring of our own Equity Market Conditions Index (EMCI), the go-forward equity market setup, while still net-negative, has improved a bit over the past month.

Here's the summary from our internal report:

11/30/2022 PWA EQUITY MARKET CONDITIONS INDEX: -16.7 (+8.3 from 10/31/2022)

SP500 past 30 days +5.38%:

Interest rates backing down a bit, strong equity market breadth, softer Fed-speak and, at the margin, improving geopolitics (US/China, China/Covid, China less-supportive of Russia) were factors leading to this month’s improved score.

However, deterioration in sector leadership, investor sentiment, and our technical analysis of the dollar (probabilities point to a bounce) – along with those inputs that remained negative in November – keep present equity market conditions net-negative.

It is worth noting that while our financial stress index (credit market conditions) still scores bearish, it has come notably off the boil, which, in a sense, cuts both ways… I.e., it’s positive, as it denotes less-precarious financial conditions, but, then again, in a myopic-market sense, it’s negative, in that it potentially puts less pressure on the Fed to lean softer.

Inputs that showed improvement:

Interest Rates (from negative to neutral)

Breadth (from neutral to positive)

Fed Policy (from negative to neutral)

Geopolitics (from negative to neutral)

Inputs that deteriorated:

US Dollar (from neutral to negative)

Sector Leadership (from neutral to negative)

Sentiment (from positive to neutral)

Inputs that remained bullish:

SPX Technicals

Inputs that remained bearish:

Valuation

Economic Conditions  

Credit Market Conditions

Areas that remained neutral:

Fiscal Policy

EMCI since inception:

SP500 since EMCI inception:

For more on our view of the general setup heading into next year, here's the link to yesterday's post featuring our latest market log entry.

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

Europe's mostly red so far this morning, with 12 of the 19 bourses we follow trading down as I type.

US stocks are slipping to start the week: Dow down 260 points (0.75%), SP500 down 0.79%, SP500 Equal Weight down 1.14%, Nasdaq 100 down 0.53%, Nasdaq Comp down 0.68%, Russell 2000 down 1.57%.

The VIX sits at 20.24, up 6.19%.

Oil futures are up 1.66%, gold's down 0.69%, silver's down 2.45%, copper futures are down 0.04% and the ag complex (DBA) is down 0.10%.

The 10-year treasury is down (yield up) and the dollar is up 0.11%.

Among our 36 core positions (excluding options hedges, cash and short-term bond ETF), only  -- Sweden equities, energy stocks, base metals miners and communication stocks -- are in the green so far this morning. The losers are being led lower by Dutch Bros, AMD, cyber security stocks, tech stocks and Mexico equities.

"...you can either use information to further develop your biases; or you can use it to train your mind."

--Andrei, Vizi. Economy of Truth 

Have a great day!
Marty