SP500, Nasdaq 100, Apple, MSFT, Gold and Ag Snapshot (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Yesterday's video "7 Indicators That Warrant Caution Right Here" in case you missed it:

7 Indicators That Warrant Caution Right Here (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: Scenarios

In the following, economist Diane Swonk does a nice job of pondering present-day economic possibilities:

"Been thinking about scenarios that could erupt as a result of the period of high volatility and uncertainty we are in.

Humbled by the vast number of outcomes in a chaotic cycle.

More I read, the more I am humbled. Some scenarios float to the top: 

Economic, Stocks, Gold and Ag Snapshot (video)

Correction/clarification: At the 12:20 to 12:58 mark, where I mention moving from a labor friendly regime to a capital friendly regime, I actually meant the other way around; moving from a capital friendly regime to a labor friendly regime. Where I mention 130% debt to GDP ratio for the US, I was referring only to government debt (which, by the way, was ~116% of GDP in the early/mid 40s).

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

S&P, Dollar, Nasdaq 100, Apple and Microsoft Snapshot (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: Careful What You Wish For!

As I mentioned yesterday, our PWA Index presently scores a recessionary -33.33; with 20% of its inputs scoring positive, 53% negative and 27% neutral. 

One of its current negative influencers is the Sectors-to-SP500 ratio -- each week we take a 30-day lookback at how each major sector is fairing against the broader market.

Here's last week's look (a below-100 score denotes the sector underperforming the S&P 500):

Morning Note: An Air of Desperation

Watching from a distance the past few days (on vacation), I found myself thinking how desperate "the market" (equity market actors) seems these days... And while indeed early-stage 2023 has seen its share of downs (recently wiping out all of January's impressive gains), it's, frankly, the ups that, for me anyway, have that air of desperation (fear of missing out) to them.

Morning Note: Near-Term Irony -- And -- A Future Rich in Macro Opportunities

Clients, you may have noticed that we paired back our metals mining exposure recently... FYI, this is purely a tactical call that jibes with our near-term economic thesis... To be sure, we remain very bullish on the metals and miners space beyond what the present bear market has left in it... I.e., we expect to be back with a full position in the not-too-distant future.

Ironically, per BCA's latest research, the factors that have us near-term cautious stand to ultimately exacerbate the bullish longer-term setup:

Market Snapshot, And a Few Other Things (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: February Inflation, Banking Scare Basics, and "Mess-Making"

CPI (headline) came in inline with economists' expectations, at .4% month-on-month, 6.0% year-on-year... Core inflation (ex-food and energy) came in a titch above expectations, at .5% (vs .4% expected) m-o-m, 5.5% y-o-y.

Again (as I stated over the weekend), at this point, in contrast to what now a whole host of major WS firms are thinking pleading, we see very low odds of a bank stress-induced immediate pause in the Fed's rate-hiking campaign.

Now, make no mistake, we do believe that odds not only favor a Fed pause over the next few months, but that, given our recession thesis, they may actually find themselves cutting their benchmark rate later in the year... Just, given the, albeit lagging, latest data, not right here.

Stock and Gold Market Snapshot, the Weekend Bailout, etc. (video)

(Update: Monday 3/13, 6:42am pdt) When I mentioned "bull trap" in last evening's video (featured below), I certainly wasn't thinking that last night's big rally in the futures market would be all she wrote, and of course the day's still very young.

As stocks reverse last evening's not-small upside move, gold (in particular), treasuries, staples and healthcare (we very recently upped our weighting in the latter 3) are holding up nicely. And of course our put hedges are moving notably higher as I type.

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Economic Update: Recession Risk, Inflation, and a Failed Bank (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Stock Market Snapshot (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: Inflationary Energy Inputs -- And -- Key Highlights From Our Recent Messaging

Below are some key highlights from our latest messaging herein... Although, before we go there, I thought I'd share some commentary I caught yesterday evening on Bloomberg... This should sound familiar, as it jibes with one of the themes that underlies our structural inflation thesis:

Stock Market Snapshot (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: Key Macro Highlights

Here I'll once again make a morning message out of my key highlights from our latest weekly macro dive.

I color-coded each based on how I see its signal, either with regard to overall general conditions, or, in the case of data related to a specific country or region, with regard to what it says specifically about a particular item... I also parenthetically defined the acronyms.

The on-balance message from the color-coding will give you a feel for why we remain guarded over present general conditions.

Morning Note: Equity Market Conditions Update

The monthly scoring or our equity market conditions index (EMCI) continues to show a generally-bearish go-forward setup for US stocks.

That said, it's not all (near-term) bad; per the technical improvement in the dollar, the still-technically net-positive setup for the S&P 500, and the overall signal from sector performance of late.

Here's the intro to our internal report:

Economic Update (video)

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Stock Market Snapshot (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: That's a Risky 'MOVE'

While investors generally associate the VIX Index (tracks SP500 options' volatility) with stock market volatility, turns out the MOVE Index (tracks treasury options volatility) is every bit (if not more so, these days) as serious a tell on the risk setup for stocks.

When (top panel) it's lived above 100 (particularly during sustained periods) during this 21st Century, stocks (bottom panel) were living dangerously:

Stock Market Snapshot (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: Know the Bent, Keep an Open Mind, and Always Think "Real"

A couple of observations around yesterday's durable goods report: 

The first reminded me to never forget that human nature tends to have one seeing things in the color one's predisposition, or previous prediction, paints... I listened to one of our research providers paint those durable goods results as nothing more than "bad economic data" and "a big miss." 

Well, in reality, not so much.

Charts of the Day: No Oomf From Volume

In last Friday's video commentary I suggested that the then selloff lacked some potential to break key technical support based on an utter lack of volume.

Well, if a lack of volume diminished the probability that last week's selloff contained sustainable downside oomf, the same so far today must therefore (for the moment) diminish the probability that today's rally contains sustainable upside oomf... Although there's a compelling case to be made for a notable technical bounce given critical support levels maintained last week.

Morning Note: Key Macro Highlights

Here I'll once again make a morning message out of my key highlights from our latest weekly macro dive.

Economic Update (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Some Important Thinking Out Loud and a Stock Market Snapshot (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: Macro Highlights

Each week we perform quite the macro exercise, which has us eyeballing, perusing, analyzing, yada yada an abundance of data. Recently I began constructing a list each week of what I view as key highlights for subject matter during our internal daily discussions...

While struggling to think of something you might find interesting for this morning's message, I thought I'd just copy and paste the latest list of those highlights and color code each based on how I see its signal, either with regard to overall general conditions, or, in the case of data related to a specific country or region, with regard to what it says specifically about a particular item.

Stock Market Snapshot (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: Recession Still Our Base Case

Mixing it up a little, we'll do last week's economic update in writing, and make it this morning's main message.

In a nutshell, our present assessment remains that go-forward odds favor recession over expansion... Question being, timing? 

Stock Market Snapshot: Wile E. Market?? (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: Wile E. Market

Ironically, what the headlines suggest is ailing the market these past couple of weeks -- stubbornly high inflation -- is very likely to measurably abate over the coming months.

Morning Note: The "Catch-22"

This morning's action (in response to this morning's producer prices print) serves as somewhat of a microcosm of our message in yesterday's video... Like I said:

Stock Market Snapshot: The Professional Manager's Problem and/or The Conundrum (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: Key Highlights

Here are some key highlights from our recent messaging herein:

Yesterday:

The Bank of Japan could, like in December, shock the world if/when they ease up on their aggressive monetary easing... Actually, it's, frankly, a will and a when, in terms of a policy shift... Suffice to say that a lot of Japanese capital sits outside Japan; repatriation of that capital would likely be disruptive:

Morning Note: CPI, Sticky Car Inflation, Beware the BOJ and This Time is Different

So, inflation in December, per this morning's CPI report, came in just a titch hotter than consensus estimates:

Morning Note: In a Nutshell

My side of an email conversation with an interested friend over the weekend will serve as this morning's note:

In a nutshell, our proprietary macro index currently scores in the red, which denotes high recession odds near-term... Although we expect it to be mild by historical comparison... And, among other indicators, our own Equity Market Conditions Index that we developed in August of '21 -- which tracks and scores 12 key inputs, ranging from the dollar, to credit market conditions, to the US equity market's (via SP500) short and long-term technical setups, to fiscal and monetary policy and geopolitical risk (which includes our own assessment of geopolitics, plus we've retained BCA Research [the oldest research firm and among the most respected] for their ongoing geopolitical analyses) -- while having improved notably over the past month, still scores a -17, which denotes a significantly less than ideal equity market setup.

Economic Update (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: Beware the Bullish Employment Narrative

It seems there's this popular notion that with employment as strong as it presently is, the odds of recession anytime soon have to be near zero.

Makes sense, right? Well, let's have a look (red shaded areas = past recessions) -- and note, when we're talking economics, while levels are to be considered, in our view it's direction and rate of change that really matter.

Stock Market Snapshot: Signals from the Vix and the Dollar (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: The Convenience, and the Inconvenience, of Last Week's Jobs Number

Two public officials will be called on to address the implications of last week's shocking (shockingly strong) jobs number.

Ironically, the January employment data will be resoundingly celebrated by one, while the other will likely hem and haw all around it, characterizing it as one data point amid otherwise weakening data, and, while not entirely dismissing it, will, well, likely, dismiss its potential for moving the needle on rate hikes going forward.

Morning Note: Still Skeptical

Our monthly review of the 12 indicators that comprise our Equity Market Conditions Index (EMCI) paints a somewhat improving -- but still bearish -- backdrop for the US equity market.

Here's the intro to our internal January report:

Economic Update: Seeing Notable Improvement in Spots (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Stock Market Snapshot: Technical Setups, a Few Internals, a Little History, and What's Powell Smoking? (video)

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Morning Note: Key Highlights

Suffice to day that I'll have much to say about this morning's blowout jobs report in this weekend's economic update (and stock market snapshot)... And, suffice to say, that -- judging by markets' initial response -- good news is indeed bad news (at present) for asset prices... In the meantime, some key highlights from our latest messaging herein:

Morning Note: No Going Back

To simply put yesterday's Fed meeting/press conference -- and this morning's same from the European Central Bank -- into context, while the market clearly does not believe these officials when they say (or imply) no rate cuts in 2023, it does indeed believe them when they say they'll be data dependent... I.e., the market sees the data rolling over and, thus, central bankers doing the same (with regard to policy rates) later this year.

Charts of the Day: Call it Dovish

Recall from Monday's note:

Nasdaq 100 Non-Commercial Traders Net Futures Positioning:

I.e., the bears are still sticking their necks out there -- risking getting their heads handed to them if indeed the Fed delivers a dovish message... I.e., that "huge short-covering if they come in dovish," will serve to add a not-small upside boost to stocks in that scenario... 

Stock Market Snapshot: Key Developments In the Current Setup (video)

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Morning Note: Likely No Fed-Relent Just Yet

Equity market futures were pointing to a lower open until the closely followed (for obvious reasons these days) Employment Cost Index came in a bit softer than expectations (note the yellow line [quarter-on-quarter change]:

Morning Note: UH OH!! (maybe)

This week will likely be big for equity market volatility (Fed meeting, ECB meeting, Apple, Amazon, Alphabet earnings, Jobs numbers, etc.)... Clearly, looking at futures speculators’ positioning, those traders are (among other things, perhaps) expecting the Fed to pull the punchbowl (or, let's say, given present dynamics, not replenish it) just as the party's getting started.

Here's from our internal chat thread over the weekend:

Quote of the Day: Yes, 0DTE Options are a Big Deal Right Here!

In Wednesday's video I made mention of the not-small (trust me!) impact that the large volume of zero-days-to-expiration options trading has been having on the overall market of late... Here's Hedgeye's Keith McCullough on the topic

"Right now, there’s a bubble in zero days to expiration (0DTE) options. North of 50% of the options traded every day expire within 6 ½ hours of the market open. Now we’re dealing with that, who’s bulling the tape to get S&P 4,000 to print, for instance. The volume of 0DTE call buying is changing market behavior – with a small number of dealers forced to hedge which suppresses volatility. But this dealer hedging works both ways and that’s why you’ve seen these wild moves in markets. You need to be careful and have a process for knowing the trend. When things unwind, they unwind quickly."

Economic Update: Corporate Earnings Shoe to Drop (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Stock Market Snapshot (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: Under the GDP Surface

My response to my good friend Sam's comment on yesterday's blog post (he mentioned the Q4 2022 economy and the impressive resilience of the equity market of late):

Morning Note: Key Highlights

Here are some key highlights from our latest messaging:

Yesterday:

...like we keep saying with regard to corporate earnings: 

"On balance, the LEI and other recession indicators are likely to continue sending a recessionary signal in the coming months. Meanwhile, aggregate earnings forecasts remain too optimistic and have room to be revised lower."

Hence, the chart we featured in yesterday's note (LEI/CEI ratio in white, SP500 earnings in orange):

Stock Market Snapshot (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: "Earnings Forecasts Remain Too Optimistic"

Folks at BCA Research seem to agree with our near-term thesis. We touched on the below indicators yesterday (LEI), and on Monday (yield curve):

Morning Note: Uninspiring Risk/Reward

So, if there's one graph (other than the one for our own index) that illustrates what has us not yet believing this year's rally in equities, it's this one (the Leading Economic Indicator/Coincident Economic Indicator Ratio):

Morning Note: A Tad Bit Complacent, We Presume...

So, while our proprietary index (-33) says recession looms,

and the 2yr treasury yield (orange) rolls below the fed funds rate (white) -- signaling rate cuts on the horizon (as recession looms),

Economic and Stock Market Snapshot (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: No Love From the Fed

Yesterday's action very much jibed with our near-term thesis for the equity market... I.e., data releases (save for mortgage apps) were resoundingly weak (recessionary even), while Fed speakers -- even the doves -- reiterated that the tightening cycle still has a ways to run:    emphasis mine...

Stock Market Snapshot (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: Can Stocks Save the Economy?

In yesterday's strategy session, Nick and I discussed the prospects for the recent trend in stocks (bullish) to, in reflexive fashion, serve to actually avert the recession we're anticipating this year.

The theory of reflexivity postulates that the stock market is in fact, more often than not, not a predictor of economic expansions and contractions, but rather a significant element amid their causes... I.e., rising stock prices incite animal spirits that incite economic activities that incite yet higher stock prices in what becomes a positive feedback loop... While, conversely, falling stock prices quash animal spirits, which incite a pulling in among consumers, which leads to lower corporate profits, layoffs and, ultimately, recession.

The former is a plausible scenario right here that we should in no way entirely dismiss... Problem this go-round is, of course, the Fed.

Morning Note: Confirmation

The following regarding last week’s commentary from bank CEOs -- per our latest messaging -- jibes to a T with our present view of general conditions:

Latest Log Entry

Sharing this morning's entry to our internal market log:

1/15/2023

Judging by the nearly overwhelming consensus among economists, our 2023 recession thesis has exceptionally high odds of playing out… The timing would be the looming question… The safe assumption would be H2, but we’ll stick with our H1 thesis for now.

The consumer still seems pretty engaged with at least the services sector, although, clearly, producers – per both ISM and JPM PMIs, and the general commentary captured in the NFIB small business survey – are bracing for/anticipating a notable slowdown.

Economic and Stock Market Snapshot (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: It (fighting inflation) is a "Marathon"

I sympathize with economist Diane Swonk's take on the current inflation setup.

Emphasis mine...

"Goods prices cooled - even new vehicle prices ticked down. But service sector inflation remains way too hot, which is where labor acute shortages play a larger role in price setting. Important to remember some of the cooling in core inflation is simple math.

Morning Note: Key Highlights

Here are some key highlights from our latest messaging herein:

Tuesday:

"...it’s worth noting that the current level of the services ISM is consistent with an EPS drawdown much more severe than anything currently forecast. Using data since the inception of the services ISM in July 1997, a reading of 49.6 is consistent with an EPS drawdown of more than 36% from peak.
I think it’s safe to say that that sort of outcome is not in
the price of equities."

Stock Market Snapshot (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: Careful What You Wish For!

If you're interested in gaming the day-to-day movements in markets, you'll need to develop an understanding of the immediate focus of (what presently inspires) short-term traders... You develop that understanding by simply matching headlines and data to the immediate, and near-term, market reaction when they're released... Do this long enough, and consistently (with an open mind), and you'll have a decent understanding of what to expect when, for example, an economic headline comes in hot or cold. 

Well, I suppose I should add that one should have a working knowledge of intermarket relationships, macro economics, present political and geopolitical setups and constraints, technical analysis, yada yada -- but, hey, just trying to make a point here!

Morning Note: Fomenting FOMO

Thinking out loud (on my keyboard) this morning, it seems clear -- tracking market internals -- that market players, in the aggregate, really want to buy equities right here... So much so that they'll sniff out whatever kernel of bullish evidence amid all the data they can, and buy it with both fists... “Bullish” being anything that hints of cooling inflation and an easing Fed -- in other  words, anything suggesting that the economy is weakening... Slowing December wage growth tucked within Friday's labor report would be a prime example... 

Economic and Stock Market Update: Recession Risk Still Rising!

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: Market "Misperception"

Pre-market action has stocks liking what amounts to a mixed December employment report... The headline jobs creation number came in a bit higher than expected and the unemployment rate declined -- 2 factors that one might think would spook a market that's hoping the Fed backs off its rate-hike ambitions sooner than later... On the other hand, hours worked and hourly earnings came in lower than expected, and of course when we're talking inflation, those items hold sway, and would indeed encourage the bulls... Which is clearly influencing at least the immediate reaction to this morning's report.

Morning Note: Maybe a Little Lalalandesque-Thinking Right Here

Suffice to say that the equity market welcomed the following from yesterday's release of the December ISM Manufacturing Survey:

Morning Note: Can Consumers Hold Up?

Listening to Morgan Stanley's chief equity strategist make his case this morning for a bear market bottom of 3,000 on the SP500, when it comes to consumption, he's sympathetic to what we expressed in the bolded sentence (last paragraph) below from Part 4 of our 2022 year-end letter:

Morning Note: New Year Shuffling

Interesting action in the pre-market on this first day of 2023... Bonds are screaming higher (yields lower) as folks are perhaps buying into the consensus recession thesis and want to get ahead of it... The dollar is ramping higher as well, consistent with the short-term technical setup I mentioned in yesterday's video... US stocks are up as well, also per the short-term technical setup we explored yesterday, and, I suspect, a continuation of the bad-economic-setup-is-good-for-stocks (as it quells inflation and calms the Fed) trade.

The General Equity Market Setup (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.