In their "daily insights" yesterday, BCA essentially echoed what we've been preaching for months:
Emphasis mine...
"...the problem for equities is that while it is true that lower interest rates are a positive development, lingering price pressures imply that the Fed will only cut interest rates this year if the economic deterioration is consistent with recessionary conditions. For equities, this macro environment would be negative for corporate earnings."The Fed's own economists, per March meeting minutes, expect a recession (albeit mild) later this year:
“Given their assessment of the potential economic effects of the recent banking sector developments, the staff’s projection at the time of the March meeting included a mild recession starting later this year, with a recovery over the subsequent two years.”
The meeting's participants, however, are not satisfied with present inflation trends:
"Participants commented that recent inflation data indicated slower-than-expected progress on disinflation. In particular, they noted that revisions to the price data had indicated less disinflation at the end of last year than had been previously reported and that inflation was still quite elevated. Participants noted that, on a 12-month basis, core goods price inflation declined as supply chains continued to improve, but the pace of the decline had slowed, highlighting the still uncertain nature of the disinflationary process."
If the staff (and our own economic assessment) is correct, they'll get that disinflation they're looking for later this year.
This morning's data (weakening economy and, thus, lower inflation) comports with the above.
Weekly Jobless Claims:
The following, from premium research firm Numera, should sound familiar.
Emphasis mine...
"Stock prices rebounded after the SVB crisis. Markets now anticipate an earlier Fed pivot, which boosted valuations and ‘growth’ stocks. Our models show that the probability of positive returns is at its lowest since the GFC (Great Financial Crisis). Moving forward, we recommend that investors remain defensive amid heightened earnings risks."
Stay tuned...
Asian stocks were mixed overnight, with 8 of the 16 markets we track closing higher.
Europe's mostly green so far this morning, with 14 of the 19 bourses we follow trading up as I type.
US equity averages are up to start the session: Dow by 125 points (0.37%), SP500 up 0.64%, SP500 Equal Weight up 0.16%, Nasdaq 100 up 1.35%, Nasdaq Comp up 1.30%, Russell 2000 up 0.83%.
The VIX sits at 18.36 down 3.82%.
Oil futures are down 0.22%, gold's up 1.40%, silver's up 1.25%, copper futures are up 1.16% and the ag complex (DBA) is up 1.16%.
The 10-year treasury is up (yield down) and the dollar is down 0.51%.
Among our 36 core positions (excluding options hedges, cash and money market funds), 30 -- led by MP Materials, Amazon, URNM (uranium miners), DBB (base metals futures) and XME (base metals miners) -- are in the green so far this morning... The losers are being led lower by XLI (industrial stocks), ITA (defense stocks), PHO (water stocks), AT&T and XLP (consumer staples stocks).
"...real productive assets; we think that is the long-term theme -- five, fifteen, twenty years -- that we are going to face a period of secular inflation, not massive, let's say 3% instead of 1.5 to 2... And that will benefit assets that either benefit from inflation or fight inflation."
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