Tuesday, November 14, 2023

Morning Note: The Woods

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.

Now, the "problem," as we've been expressing ad nauseam (most recently last Friday), is that investors seem to forever, at this stage of the cycle, get sucked in by deteriorating data -- as they anticipate a friendly Fed response -- only to suffer the disappointment (if not devastation) that comes with the recession-induced last leg down of a bear market.

Now, make no mistake, I'm not speaking inevitability here, I'm simply speaking the go-forward risk/reward setup... Today's news, rather than taking us out of the woods, confirms that we are deeply within... If we indeed happen to escape the woods without recession, and inflation settles back in at the Fed's 2% target, all's good in the land of equities, and we introduce, and add to, positions/asset classes that our long-term thesis says will shine over the years to come... Presently, however, odds that we'll be able to capture them at more attractive (cheaper) levels over the coming months are simply too high to ignore.

In tomorrow's video we'll explore the present valuation vantage point for equities, and consider the odds of stocks staging a durable uptrend from these levels.

Asian stocks were generally strong overnight, with 10 of the 16 markets we track closing higher.

Same for Europe so far this morning, with 16 of the 19 bourses we follow trading up as I type.

US equity averages are higher to start the session: Dow by 428 points (1.2%), SP500 up 1.61%, SP500 Equal Weight up 2.24%, Nasdaq 100 up 1.93%, Nasdaq Comp up 2.04%, Russell 2000 up 3.75%.

As for yesterday’s session, US equities were flat: Dow up 0.2%, SP500 down 0.1%, SP500 Equal Weight down 0.2%, Nasdaq 100 down 0.3%, Nasdaq Comp down 0.2%, Russell 2000 down 0.1%.

This morning the VIX sits at 14.20.

Oil futures are up 1.18%, nat gas futures are down 0.75%, gold's up 1.04%, silver's up 3.15%, copper futures are up 1.09% and the ag complex (DBA) is down 0.36%.

The 10-year treasury is down (yield up) and the dollar is down 1.00%.

Among our 32 core positions (excluding options hedges, cash and money market funds), 30 -- led by XLRE (REITs), EWZ (Brazil equities), XME (base metals miners), SLV (silver) and REMX (rare earth miners) -- are in the green so far this morning... The losers are DBA (ag futures) and AT&T.

Again, of all the investment risks we think about, the most dangerous reside in the mind of the investor:
"The gaze of the crowd brings about an intoxication in which the will of the individual is annihilated." --Gustave Le Bon

Have a great day!

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