Tuesday, May 30, 2023

Morning Note: Debt Deal Impact, Asset Class/Sector/Regional Results Update and Tech Bubble Breadth

From what I'm gathering initially, should the proposed debt ceiling deal pass, Mark Zandi seems to capture the perceived ramifications:

Now, from an asset/risk-management standpoint, without, let’s say, anything blowing the economy over, one can surmise that the Fed's work is not yet done in getting inflation to their target -- despite the next couple of months of favorable base-effects, which, all things equal, present a mathematical headwind against the year-over-year rate of inflation... Base effects thereafter, however, present a notable tailwind to year-end (bad news, all things equal, for the Fed). 

The way this, therefore, could very well play out is that recession, should it come, will be blamed on the combination of debt-ceiling-deal spending cuts and further tightening from the Fed.

I.e., the risk/reward for equities remains quite sketchy right here.

Here's your weekly look across asset class results:

Suffice to say, the divergences captured in the year-to-date results -- across US sectors in particular (3 [hugely] in the green, 8 in the red) -- are astounding!

Objective (yes, needs distinguishing) money managers (us included) have pointed out that the concentration displayed in today's equity market setup is the likes of which not seen since the lead-in to the early 2000s' tech bubble pop.

Here we line them up next to present YTD results:

Not (sincerely not) suggesting that things have to play out as they did in the early 2000s, just illustrating what a resoundingly unhealthy breadth setup looks like.

And, alas, this morning is no exception... As I type (just after the open), tech, discretionary, REITs and utilities are higher, the other 7 are in the red -- while the SP500 is up 0.39%, Nasdaq Comp up 1.15%, Dow down 0.27%.

Stay tuned, and stay hedged.

Asian stocks were mostly red overnight, with 10 of the 16 markets we track closing lower.

Same for Europe so far this morning, with all but 12 of the 19 bourses we follow trading down as I type.

Despite the sector action highlighted above, US equity averages are mostly (save for the Dow) higher to start the session: Dow down 91 points (0.27%), SP500 up 0.39%, SP500 Equal Weight up 0.09%, Nasdaq 100 up 1.16%, Nasdaq Comp up 1.09%, Russell 2000 up 0.29%.

As for Friday's session, US equity averages closed higher: Dow by 1.0%, SP500 up 1.3%, SP500 Equal Weight up 0.8%, Nasdaq 100 up 2.6%, Nasdaq Comp up 2.2%, Russell 2000 up 1.0%.

This morning the VIX sits at 17.21, down 4.12%.

Oil futures are down 3.43%, gold's up 0.43%, silver's down 0.78%, copper futures are down 0.66% and the ag complex (DBA) is down 0.53%.

The 10-year treasury is down (yield up) and the dollar is down 0.17%.

Among our 34 core positions (excluding options hedges, cash and money market funds), 14 -- led by XLK (tech stocks), HACK (cyber security stocks), VNM (Vietnam equities), MP Materials and Dutch Bros -- are in the green so far this morning... The losers are being led lower by OIH (oil services stocks), EWZ (Brazil equities), XLE (energy stocks), URNM (uranium miners) and DBB (base metals futures).

“The more we try to put everything to rights, the more we make fantastic messes.”
--Alan Watts

Have a great day!

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