Thursday, March 23, 2023

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):

Financials (88.86):

Consumer Discretionary (99.19):

Materials (95.84):

Energy (93.27):

Industrials (98.01):

Tech (106.12):

So, when Tech is the only sector, among what we'll call the economically-sensitive sectors, that's presently outperforming the broader market, suffice to say that the economy ain't presently looking so good.

Especially when you consider the fact that economically-defensive consumer staples and utilities have outperformed of late:

Consumer Staples (100.87):

Utilities (102.57):

Healthcare, on the other hand, would be your defensive sector whose recent relative performance doesn't comport with our overall recession score (give it time):

Healthcare (98.99):

Now, looking again at those graphs, we need to address the rapid relative-performance descent of Industrials, Materials and Energy, in particular, that occurred over just the course of last week.

Clearly, that reflects a big-time rotation (that we've seen the past couple of weeks) out of those early-January winners and into what big money suspected would do well (big tech) should the banking scare force an abrupt pause in the Fed's rate-hiking campaign.

Well, per yesterday's market action, they didn't get what they were after... What they got was a 25 bp hike, and what amounted to a commitment to do more if tighter lending standards don't do all of the heavy lifting against inflation over the coming months...

Thing is, if indeed that's the right depiction of big-money positioning — while it may continue in the short run — it, in our view, is entirely the wrong thinking.

I mean, again, we're talking high odds of recession going forward, which, frankly, means that the Fed could've probably gotten away with a pause yesterday... Which, ironically, I suspect, the market would've loved -- only to wake up in the not-too-distant future hating the fact that the earnings underlying those high-flying tech stocks (for example) simply can't hold up against a pullback in all manner of spending that would accompany a recession.

So, yeah, be careful what you wish for!

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

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

US equity averages are rebounding from yesterday's drubbing to start the session: Dow up 284 points (0.89%), SP500 up 1.21%, SP500 Equal Weight up 0.89%, Nasdaq 100 up 1.92%, Nasdaq Comp up 1.85%, Russell 2000 up 0.99%.

The VIX sits at 20.63 down 7.32%.

Oil futures are up 0.56%, gold's up 0.51%, silver's up 0.27%, copper futures are up 1.28% and the ag complex (DBA) is down 0.10%.

The 10-year treasury is up (yield down) and the dollar is down 0.07%.

Among our 36 core positions (excluding options hedges, cash and money market funds), 31 -- led by AMD, Albemarle, MP Materials, Dutch Bros and base metals miners -- are in the green so far this morning... The losers are TLT (long-term treasuries), EWZ (Brazil equities), LEMB (local currency emerging market bonds), Johnson and Johnson and VGIT (intermediate term treasuries).

The ultimate challenge when it comes to investing:
"Still a man hears what he wants to hear and disregards the rest." --Simon and Garfunkel 

Might as well 😎 ⇩

Have a great day!

No comments:

Post a Comment