Friday, February 3, 2023

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:


As I’ve expressed herein, we think the longer-term macro setups are very clear, and VERY investable, once the current setup (bear market/likely recession) plays itself out. 

January was amazing for stocks, surprised me for sure! Interestingly, some of January’s best performers were some of last year’s most deserving disasters... Question being, have their prospects improved enough to justify such an impressive snap back? 

That’s a very good question?!?


 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... 
Here's today's Nasdaq 100 1-minute chart... The red X marks 5 minutes into Powell's press conference:

Yep, call it a dovish message, and, yep, call it yet another short-covering rally.


Investors/traders continue to cling to any hint that they (in the aggregate) -- as evidenced by, for example, this year's equity market performance, and the following -- know the Fed better than they know themselves.

Here's what the market (via Fed funds futures) expects from the Fed during the course of this year:

Here's what the Fed members themselves (each dot represents an individual member's projection) expected for this year at their last meeting: 

Their statements since then suggest that they're not at this point ready to relent to market expectations… We’ll know for sure tomorrow. 


...The top panel being the Goldman Sachs Financial Conditions Index, when it rises financial conditions are tightening, when it falls, they're loosening... The bottom panel is year-over-year inflation (CPI)... Note the negative correlation over time, and note the recent decline in (loosening of) financial conditions, at what remains a high, albeit declining of late, level of inflation:

Yeah, "UH OH!!"

Asian stocks were mostly green overnight, with 11 of the 16 markets we track closed higher.

Europe's, on the other hand, is mostly red so far this morning, with 13 of the 19 bourses we follow trading down as I type.

US equity averages are down to start the session: Dow by 140 points (0.41%), SP500 down 0.67%, SP500 Equal Weight down 0.26%, Nasdaq 100 down 0.82%, Nasdaq Comp down 0.79%, Russell 2000 down 0.36%.

The VIX sits at 18.40, down 1.76%.

Oil futures are up 1.92%, gold's down 1.59%, silver's down 3.36%, copper futures are up 0.33% and the ag complex (DBA) is up 0.58%.

The 10-year treasury is down (yield up) and the dollar is down 0.20%.

Among our 36 core positions (excluding options hedges, cash and short-term bond ETF), 4 -- oil services stocks, Dutch Bros, our energy ETF and metals miners -- are in the green so far this morning. The losers being led lower Amazon, silver, uranium miners, utilities stocks and gold.

"Inflation is always and everywhere a monetary phenomenon."

--Milton Friedman

Have a great day!