Monday, March 6, 2023

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:

2/28/2023 PWA EQUITY MARKET CONDITIONS (EMCI) INDEX: -33.33 (-16.7 from 1/31/2023)

SP500 past 30 days -2.61%:

EMCI declined 17 points in January, denoting net deterioration in equity market conditions; warranting a cautious-leaning portfolio allocation stance with regard to US equities. 

Generally hawkish Fed policy, rising interest rates and deteriorating credit market conditions joined valuation, economic conditions and geopolitics in the bearish category. While only the US dollar (technically neutral from bullish [a bullish dollar is bearish for equities right here]) showed month-on-month improvement.

The above said, SP500 technicals and sector leadership remain potentially-consequential near-term supportive setups for stocks.

Inputs that showed improvement:

US Dollar (from negative to neutral)

Inputs that deteriorated:

Fed Policy (from neutral to negative)

Interest Rates and overall liquidity (from neutral to negative [primarily interest rates)

Credit conditions (PWA Financial Stress Index) (from neutral to negative)

Inputs that remained bullish:

Sector Leadership 

SPX Technical Trends  

Inputs that remained bearish:


Economic Conditions


Areas that remained neutral:

Fiscal Policy



EMCI since inception:

SP500 since EMCI inception:

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

Same for Europe so far this morning, with 10 of the 19 bourses we follow trading up as I type.

US equity averages are (save for the Russell 2k) higher to start the session: Dow by 118 points (0.35%), SP500 up 0.63%, SP500 Equal Weight up 0.31%, Nasdaq 100 up 1.04%, Nasdaq Comp up 0.89%, Russell 2000 down 0.22%.

The VIX sits at 18.69, up 1.08%.

Oil futures are down 0.33%, gold's down 0.24%, silver's down 0.42%, copper futures are up 0.10% and the ag complex (DBA) is down 0.27%.

The 10-year treasury is up (yield down) and the dollar is down 0.18%.

Among our 36 core positions (excluding options hedges, cash and short-term bond ETF), 26 -- led by XLK (tech stocks), AMD, Disney,  XLC (communications stocks) and EWZ (Brazil equities) -- are in the green so far this morning. The losers are being led lower by URNM (uranium miners), XME (base metals miners), XLE (energy stocks), SLV (silver) and XLB (materials stocks).  

Definitely one of my all-time favorite (and oft-quoted herein) market quotes:
"People get all excited about the price movements, but they completely misunderstand that there is a bigger picture in which those price movements happen. Price movements only have meaning in the context of the fundamental landscape. To use a sailing analogy, the wind matters, but the tide matters, too. If you don’t know what the tide is, and you plan everything just based on the wind, you are going to end up crashing into the rocks."

--Colm O'shea

Have a great day!

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