Wednesday, December 7, 2022

Morning Note: Never Cut and Dried

While yesterday looked a lot like Monday in terms of the move (down) in the S&P 500, the signaling from some other asset classes was markedly different.

For example, Monday saw gold and treasury bonds get whacked every bit as much as stocks, while yesterday, as stocks continued to get shellacked, the 2 turned in nice gains. 

So what gives? Well, call it confusion over what to expect heading into 2023... Based on asset class performance, one could argue that Monday was all about the fear over inflation and higher interest rates, while Tuesday seemed to be more about fear over recession.

So why the apparent confusion? Well, to get a feel for it, here's economist Peter Boockvar on the striking difference in the results of two surveys (both released on Monday) that presumably cover the same sector of the economy (ISM Services and S&P US Services PMI):

"The ISM said in a bottom line, “increased capacity and shorter lead times have resulted in a continued improvement in supply chain and logistics performance. A new fiscal period and the holiday season have contributed to stronger business activity and increased employment.”"

"Hearing the conclusion from the chief economist of S&P Global sounds like you’re living in a different country when compared to what the ISM said, “The survey data are providing a timely signal that the health of the US economy is deteriorating at a marked rate, with malaise spreading across the economy to encompass both manufacturing and services in November.”"

At the end of the day, while, in or view, odds presently favor recession as we head into next year, nothing economic is ever cut and dried... I.e., gotta crunch the data, day in and day out, while always keeping an open mind to all possibilities..

Asian equities struggled again overnight, with 13 of the 16 markets we track closing lower.

Same for Europe so far this morning, with 15 of the 19 bourses we follow trading down as I type.

US stocks are leaning slightly green to start the session: Dow up 35 points (0.10%), SP500 up 0.16%, SP500 Equal Weight up 0.21%, Nasdaq 100 down 0.11%, Nasdaq Comp down 0.10%, Russell 2000 up 0.43%.

The VIX sits at 22.56, up 1.76%.

Oil futures are up 0.79%, gold's up 0.75%, silver's up 2.15%, copper futures are up 0.72% and the ag complex (DBA) is up 0.21%

The 10-year treasury is up (yield down) and the dollar is down 0.41%.

Among our 36 core positions (excluding options hedges, cash and short-term bond ETF), 28 -- led by silver, Albemarle, MP Materials, treasury bonds and oil services companies -- are in the green so far this morning. The losers are being led lower by tech stocks, emerging market equities, Nokia, communications stocks and Disney.

Again, gotta keep an open mind, because:
"...the more energy you put into trying to control your ideas and what you think about, the more your ideas end up controlling you."

--Taleb, Nassim Nicholas. Antifragile  

Have a great day!

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