Tuesday, June 13, 2023

Morning Note: Living in a Purple Line World

Thinking through this morning's inflation print I'm thinking "meh" pretty much captures it.

Headline coming in at 0.1% month-on-month, vs 0.2% consensus expectations, 4.0% year-on-year, vs 4.1% expected... Ex-out food and energy (core inflation) and it's bang-on expectations, which were 0.4% m/m and 5.3% y/y.

Certainly nothing to upset equity markets, as, for certain, the Fed's doing nothing tomorrow... They'll pause, they'll warn that it may very well be "a skip," and that there's not-small potential for rate-hike resumption later in the year.

The following chart, however, says odds favor that the Fed's all done with rate hikes -- for this cycle -- for good... In fact, it says that the next rate move from the Fed will actually be a cut.

Green line represents the Conference Board's Index of Leading Economic Indicators, the purple line is their Index of Coincident Economic Indicators:

So, there's 60 years of economic history captured in that chart... And, alas, not a single instance where the green line came anywhere near the current look without the purple ultimately following, only to bottom amid one of those red-shaded areas, which happen to be recessions.

Clearly, the equity market is trading in a purple-line world as I type... History, however, says the purple line is likely to catch down to the green, which, by the way, would -- historically-speaking -- be your stock market trajectory as well.

Stay tuned...

Asian stocks were mostly green overnight, with 12 of the 16 markets we track closing higher.

Same for Europe leaning so far this morning, with all but 15 of the 19 bourses we follow trading up as I type.

US equity averages are catching a bid to start the session: Dow by 210 points (0.65%), SP500 up 0.69%, SP500 Equal Weight up 0.86%, Nasdaq 100 up 0.59%, Nasdaq Comp up 0.66%, Russell 2000 up 1.22%.

As for Friday's session, US equity averages closed (save for the Russel) mostly higher: Dow up 0.6%, SP500 up 0.9%, SP500 Equal Weight up 0.7%, Nasdaq 100 up 1.8%, Nasdaq Comp up 1.5%, Russell 2000 up 0.4%.

This morning the VIX sits at 14.58, down 2.8%.

Oil futures are up 3.59%, gold's down 0.11%, silver's down 0.36%, copper futures are up 1.86% and the ag complex (DBA) is up 0.07%.

The 10-year treasury is up (yield down) and the dollar is down 0.37%.

Among our 34 core positions (excluding options hedges, cash and money market funds), 29 -- led by OIH (oil services companies), URNM (uranium miners), XME (base metals miners), XLE (energy stocks) and XLB (materials stocks) -- are in the green so far this morning... The losers are being led lower by AT&T, TLT (long-term treasuries), SLV (silver), GLD (gold) and EWW (Mexico equities).

Like I said yesterday, there's never a bad time for my all time favorite market quote:

"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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