Below are some key highlights from our latest messaging herein:
...clearly, the bulls are not shaken by the latest data... Which would be the Pavlovian response to the notion that sweet Fed policy for markets always follows sour data... And that makes sense, except that is -- as I illustrated in a recent video presentation -- when we're in recession... This, in that instance, would be your classic "bull trap" (investors rush in based on sketchy narrative, only to, sadly, be ultimately caught by an opposing reality).
As for Sunday's surprise OPEC production cut; yes, of course, it reflects concern over the state of the global economy, and, therefore, anticipated weaker oil demand going forward.
Monday:
3/31/2023 PWA EQUITY MARKET CONDITIONS (EMCI) INDEX: -50.00 (-16.7 from 2/28/2023)
SP500 past 30 days +3.51%:
Despite March’s impressive (2nd half) rally, EMCI declined another 17 points on the month, to our lowest reading since August 2022… Denoting further deterioration in equity market conditions – and warranting a cautious-leaning portfolio allocation stance with regard to US equities.
While our sentiment (contrarianly net fear) and our interest rates/liquidity indicators showed moderate improvement, sector leadership (from positive to negative), the US dollar’s near-term technical setup (from neutral to negative) and SP500 longer-term technical trends (from positive to neutral) deteriorated on the month.
Fed policy, US equity market valuation, economic conditions, geopolitics and overall credit conditions all remained (save for perhaps fed policy [somewhat softer guidance]) solidly in the negative category.
US DOLLAR: -1 (-1)
Last month began with a neutral technical setup for the dollar… By 3/10 the pattern turned bearish and the dollar had begun to roll over, trending downward to the end of the month -- creating a nice tailwind for equities. In fact, stocks bottomed on 3/13, then proceeded to climb 6.6% through 3/31.
Top panel SP500, bottom panel US Dollar Index:
The setup right here reads bullish for the dollar, presenting a potential headwind for equities beginning early April:
Note: here's that S&P/Dollar chart this week:
Last Thursday:
"...reasonable to think that the tightening of standards has not yet been reflected in actual lending; the modeled six-month forward change in C&I lending is now negative for just the third time in the last two decades.
That is clearly a vector of vulnerability for the economy moving forward and bears watching closely. C&I lending was at an all-time high in nominal terms in the Fed’s last H.8 release, so it’s not just deposits that we need to keep an eye on moving forward."
Thursday 3/23:
...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!
Wednesday 3/22:
Our base case remains that odds favor another leg lower for the current bear market, based on corporate earnings adjusting to what, at best, is a notable growth slowdown, if not all-out recession (our current view), over the coming months.
Now, the above said, as I continue to preach, we're not wedded to that thesis; indeed, the bulls may have it right, right here.
It's just that the risk/reward setup right here in no way allows us to allocate like it's June 2009 all over again -- which, for example, saw our PWA Index emerging from the red (scored a +12.50 on 6/1/09) amid the Great Financial Crisis... Last week's score was -33.33.
We'll get there ("there" being when conditions favor a more aggressive stance), we're just not there yet, despite recent (albeit only a week or so) action.
Thursday 3/16:
"If future availability of copper and other minerals does not keep pace with demand as states throw ever-more support toward meeting net-zero emissions targets, the cost of the green-energy transition will inevitably be prolonged and will rise. High energy and metals prices will feed into the price of clean-energy technologies. This also will be inflationary."
Asian stocks were mostly red overnight, with 11 of the 16 markets we track closing lower.
Europe, on the other hand, is mostly green so far this morning, with 15 of the 19 bourses we follow trading up as I type.US equity averages are in the red to start the session: Dow down 99 points (0.29%), SP500 down 0.26%, SP500 Equal Weight down 0.20%, Nasdaq 100 down 0.42%, Nasdaq Comp down 0.34%, Russell 2000 down 0.12%.
The VIX sits at 19.40 up 1.68%.
Oil futures are down 0.47%, gold's down 0.66%, silver's down 0.75%, copper futures are down 0.01% and the ag complex (DBA) is up 0.34%.
The 10-year treasury is down (yield up) and the dollar is up 0.13%.
Among our 36 core positions (excluding options hedges, cash and money market funds), 11 -- led by EWW (Mexico equities), DBA (ag futures), Dutch Bros, TLT (long-term treasuries) and ITA (defense stocks) -- are in the green so far this morning... The losers are being led lower by URNM (uranium miners), AT&T, Disney, VNM (Vietnam equities), SLV (silver) and VPL (Asia-Pac equities).
"The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design." --Friederich Hayek
Have a great day!
Marty
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