Thursday, October 12, 2023

Morning Note: Inflation, Fed (for the moment) Calming Waters, and Key Highlights

So, headline CPI came in a titch hotter than expected, while core (ex-food and energy) came in bang on expectations... Stocks flinched a bit in the premarket, then settled slightly higher ahead of the open... Bonds took a bit of a hit (yields up), but, all in all, while, say, 2 weeks ago this report might've rattled markets (although the day is very young as I type, so, you never know), Fedheads seem to have, for the moment, calmed market waters with their unanimous hints that they're pretty much done hiking rates... In fact, two more overnight (just ahead of fresh CPI data no less), echoed that chorus.

We'll tackle CPI and the rest of the week's data in tomorrow's economic update.

In the meantime, here are a few key highlights from our latest messaging herein:

"...while in our view caution remains warranted right here, there could indeed be more upside to equities in the near-term, particularly -- given the current character of the trading action -- if we get soft PPI and CPI reads this week.

You can think of it this way, if what we're seeing in the data plays out as we believe odds favor (recession), ironically, as the trend gains steam, stocks in all likelihood (early on) will rally... That's an easy call to make, as, despite what the Fed promises (higher rates for longer), investors firmly believe that it will come to the rescue at the first serious sign of consumer, and, therefore, corporate profit, stress.

And while -- again, despite the Fed's own assertions -- that may indeed be the case, as we've illustrated, the history around recessions and the stock market has not been kind to that conviction."
Last Thursday:
"One other development that could support equities in the short-run is a recent shift in market sentiment -- from bullish to notably bearish... Yes, that's a contrarian indicator.

We acknowledged as much in our latest internal Equity Market Conditions Report... Here's a snippet from the excerpt we shared on Monday:

"As for the signal from the rest of the EMCI inputs, suffice to say that, while October may indeed see a snapback rally (should, for example, now-bearish sentiment see yet another fomo-fueled shift to bullishness -- on which we'll say odds presently favor), the current setup for equities remains difficult – to put it mildly."

Now, make no mistake, as the above quote implies, given present general conditions, a rally right here -- should one develop for more than a few days, weeks, or even months -- would not be one (for the prudent, long-term investor) to chase!"
Last Tuesday:
"Bottom line: While, with the future (near-term, and into the next cycle) in mind, we're making tactical adjustments at the margin -- (increasing cash [treasury money mkt fund] and maneuvering a few other exposures, while picking up additional yield in the process) -- staying diversified, hedged, and, most of all, patient, makes the most sense to us right here."
Last Monday:
"Bottom line: Given what are historically-high US equity market valuations, what remains relatively tight monetary policy, generally high geopolitical risks, notably uncertain economic conditions (above average recession odds on a 3-12 month outlook), a sharp deterioration in market breadth, and, on-balance, tight credit market conditions, prudence precludes us from adding measurable risk to our current core allocation."

Asian stocks traded up overnight, with 12 of the 16 markets we track closing higher.

Europe's leaning red so far this morning, with 10 of the 19 bourses we follow trading down as I type.

US equity averages have turned mostly lower to start the session: Dow down 107 points (0.32%), SP500 down 0.22%, SP500 Equal Weight down 0.79%, Nasdaq 100 up 0.10%, Nasdaq Comp down 0.04%, Russell 2000 down 1.18%.

As for yesterday’s session, US equity averages were mostly higher: Dow up 0.2%, SP500 up 0.4%, SP500 Equal Weight up 0.2%, Nasdaq 100 up 0.8%, Nasdaq Comp up 0.7%, Russell 2000 down 0.1%.

This morning the VIX sits at 16.21, up 0.75%.

Oil futures are up 1.25%, nat gas futures are down 1.04%, gold's up 0.11%, silver's down 0.25%, copper futures are down 0.42% and the ag complex (DBA) is up 0,26%.

The 10-year treasury is down (yield up) and the dollar is up 0.41%.

Among our 34 core positions (excluding options hedges, cash and money market funds), 8 -- led by Albemarle, XLE (energy stocks), XLK (tech stocks), REMX (rare earth miners) and Range Resources -- are in the green so far this morning... The losers are being led lower by XME (base metals miners), AT&T, URNM (uranium miners), EWW (Mexico equities) and XBI (biotech stocks).

We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful. --Warren Buffett

Have a great day!

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