Today’s action in US equities screams to the still-prevailing “soft-landing” market mood… I.e., bad news is viewed as good news, because, presumably, any weakness will not land us in recession, and (or perhaps because) it’ll inspire the Fed to ease policy.
So, when this morning’s ISM Services Survey came in better than expected, stocks immediately sold off (red circle below):
SP500 so far today:
Along with a better overall score, the survey’s prices (inflation) component popped 2 points, while being described as “increasing faster.” Of course that had to send chills into those counting on the Fed easing sooner than later.
Ironically, while I see not-small downside risk going forward, I believe, if it materializes, it’ll ultimately occur amid the kind of data (weaker) that the soft-landing crew is hoping for…
So, bottom line, our base case remains: In a real sense, the equity market unwittingly finds itself between the proverbial rock and a hard place… Should the economy not cool off measurably (read recession), inflation will not meander down to the Fed’s target, in which case the Fed will continue tightening until, yep, the economy cools off measurably (read recession)… In which case, the go-forward projected corporate earnings that are fully-reflected in current stock prices will likely not come to pass, in which case, stock prices will have to adjust (lower) to fully-reflect what likely will come to pass.
Now, this is not to say that a soft landing isn’t a distinct possibility, it’s just that, in my view, the escape route out from between that proverbial rock and a hard place is a distinctly narrow one indeed.
So, if the above scenario plays out, stocks would see yet another promising rally as the data finally begin to roll over for good (into the next recession) – as the Fed will then have to legitimately prime for a pivot… However, and alas, said rally would culminate as bear trap/blowoff tops always do, by delivering the maximum pain to those least prepared for them.
Asian stocks got hammered overnight, with 13 of the 16 markets we track closing lower.
Same for Europe so far this morning, with 15 of the 19 bourses we follow trading down as I type.
US equity averages are down to start the session: Dow by 15 points (0.03%), SP500 down 0.59%, SP500 Equal Weight down 0.62%, Nasdaq 100 down 1.02%, Nasdaq Comp down 1.27%, Russell 2000 down 1.21%.
As for Yesterday’s session, US equity averages closed lower: Dow down 0.6%, SP500 down 0.7%, SP500 Equal Weight down 0.3%, Nasdaq 100 down 0.9%, Nasdaq Comp down 1.1%, Russell 2000 down 0.3%.
This morning the VIX sits at 15.17, up 4.98%.
Oil futures are down 0.01%, nat gas futures are up 3.55%, gold's up 0.23%, silver's down 0.56%, copper futures are down 0.68% and the ag complex (DBA) is down 0.05%.
The 10-year treasury is up (yield down) and the dollar is up 0.10%.
Among our 34 core positions (excluding options hedges, cash and money market funds), 8 -- led by JNJ, XLV (healthcare stocks), XLC (communication stocks), EMB (emerging mkt bonds) and VGIT (intermediate-term treasuries) -- are in the green so far this morning... The losers are being led lower by Dutch Bros, MP Materials, Albemarle, XME (base metals miners) and XLK (tech stocks).
Another quote from The Fourth Turning Is Here -- I bolded the eerily familiar line:
"As they approached the close of each of these prior Third Turning eras, Americans celebrated a self-seeking ethos of laissez-faire “individualism” (a word first popularized in the 1840s), yet also fretted over social fragmentation, distrust of authority, and economic and technological change that seemed to be accelerating beyond society’s ability to control it."--Howe, Neil. The Fourth Turning Is Here: What the Seasons of History Tell Us about How and When This Crisis Will End
Have a great day!