FYI, for the next few weeks (to year end), I'll be a bit less active, and less voluminous, here on the blog, as I'll be devoting the time normally spent organizing, then articulating, my thoughts for the daily message to what, as usual, will be a several part year-end message (delivered over the final two weeks of the year)..
So, for this morning, just the following graph (H/T BCA Research), followed by my brief assessment, and some critical investment wisdom from the late great Charlie Munger:
Bloomberg's Cameron Crise this morning speaks to what has stocks green at the open:
"When you are a bull, everything looks like a red cape, which kind of explains how the market is likely to interpret this morning’s data. The salient features were a downward revision to the Q3 core inflation index, a downward revision to last quarter’s household spending, and downside surprises to October inventory data (which should produce a downgrade to current-quarter growth estimates.) That all casts a dovish hue on the policy backdrop..."
All of which denotes a slowing economy, which of course is to be expected if the 2024 recession narrative is to play out... In the meantime, as is typical at this stage, confirmation of such, is, ironically, bullish for stocks.
Yes, we've touched on this plenty of late, but, again, per our weekly results update below, the divergence among equity sectors this year has been utterly shocking... And while indeed a serious broadening (the 8 of 11 sectors that are, let's say, not having a magnificent year playing catch up) may be in the offing, history offers up some serious red flags to consider.
Allow me to illustrate.
Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:
Comments made by Hedgeye CEO Keith McCullough in today's Macro Show resonated with me, and has me calling up the following from my video commentary this morning:
"Let's see this for what it is; this is not a time, from these levels and from this stage in the cycle, to expect that the next new raging bull market is about to begin...
Toward the end where I mention jobless claims, I suggested that a weak number would be bullish for stocks (given the present character of the trading), I actually meant that a strong number (denoting a weak labor market) would be bullish... Now, go figure, the number was weaker than expected (denoting a strong labor market) and equity futures didn’t budge... Although, I should add that last week’s number was revised up (weak sign), and Nvidia didn’t whiff yesterday... Hmm...
Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:
This, from Howard Marks, captures the messaging herein of late:
"...you’re unlikely to succeed for long if you haven’t dealt explicitly with risk. The first step consists of understanding it. The second step is recognizing when it’s high. The critical final step is controlling it."
Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:
In this morning's video (recorded yesterday) I mention Walmart's outlook on the consumer... To really pound home their expectations; this from the CEO:
"We may be managing through a period of deflation in the months to come."
I can not stress enough what such a scenario would do to corporate earnings, particularly this go-round.
Premium research provider Numera Analytics, like us, sees late cycle dynamics at play, and is, thus, cautious on equities right here... They, also, per their just-released Global Asset Allocation Report, nevertheless see opportunity in certain emerging markets:
Amidst our constant reminders that the present equity market setup remains somewhat precarious, we also continue to hint that our go-forward thesis sees unique global opportunities ahead -- beyond, that is, what's left in the current cycle.
Crescat's Tavi Costa points to one that we agree makes great sense going forward:
Yes, resource-rich economies, both from a valuation standpoint and given our view on the dollar during the next cycle, are one of those opportunities... Whether or not now's the time to take on full positions, well, that remains to be seen.
Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:
This morning's CPI report comports perfectly with our current and go-forward theses... Current being the market reaction (up) to a weaker than expected print, the go-forward being that weaker inflation is 100% consistent with a weakening economy... The market reaction also, as I've been pointing out in the video commentaries, comports on balance with the short-term technical setup for equities, yields and the dollar.
Not much to add this morning to Friday and Saturday's video commentaries... CPI tomorrow, retail sales Wednesday, earnings announcements, Fed speakers, and, alas, the government shutdown circus I suspect will give us plenty to comment on over the next few days.
Here's your weekly sector, region and asset class results update (and a quote to ponder):
Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:
Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:
Diane Swonk is a very good, thoughtful, objective economist... This morning's message is all her:
"One lesson I learned early in my career was that consumers will resist, with everything in their power, reductions in their standard of living. Later I learned that it was not just the amount people accumulated that mattered, but the pace at which they accumulated stuff that became so entrenched. A version of keeping up with the Joneses played out en masse.
Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:
Here are the highlights from Bloomberg's Tatiana Darie's warning about the signal in Caterpillar's latest numbers (which [Cat's global sales growth], btw, happens to be one of the 47 inputs to our PWA Index).
Emphasis mine:
Caterpillar Is Sending a Warning About the Economy: Macro View (Bloomberg) -- Caterpillar earnings spooked investors, who saw a drop in its order backlog as an ominous sign for the global economy. At least for the US, its largest market, that holds some truth, which means it’s also a warning for the stock market.
Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:
Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:
In yesterday's chart of the day, I illustrated the point that, at this juncture, weak economic news is strong stock market news... I think I've expounded sufficiently as to why in our latest commentaries... The other thing the equity market has going for it is resoundingly sour sentiment, all of a sudden.
The setup is pretty similar to what we sniffed out at the beginning of October.
As clients and regular readers have no doubt noted, while the next leg of the current bear market (should there be one) will be characterized by declining corporate earnings amid notably weakening economic conditions, in our view the latter, in its early stages, will, ironically, very likely inspire a potentially not-small rally in stocks.
In today's chart of the S&P 500 below, I green X'd the moment the ISM Manufacturing Survey for October was released, and two spots during Fed Chair Powell's press conference:
And, lo and behold, stocks immediately popped higher on the release -- validating our latest messaging herein.
As for that volatility around Powell's presser, when he came out of the gate with some tough talk on remaining vigilant, stocks bolted lower -- the market is desperate for the Fed to lighten up (not considering the conditions [and the earnings setup] that will actually make that happen) -- he then proceeded to celebrate the progress they've made thus far 😕, and to essentially not say anything to further upset the market applecart right here.
As I've pointed out in the last 3 video updates, the technicals were also pointing to pretty strong odds of a rally right here.
Stay tuned...
Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:
