Things Not Lining Up

Attention clients, this one's important to take in when you have a few minutes.

While I concede that Wall Street’s soft landing narrative – while, in my humble opinion, relying entirely on the Fed – has merit, there’s simply far too much uncertainty yet emerging from the data (not to mention where we are in the cycle, equity market valuations [very high), yada yada] to have us adding risk to client portfolios right here.

Case in point being the latest Fed Beige Book.

Here’s Peter Boockvar with the highlights:

The Bull Case

While our work sees a global macro setup fraught with risk-asset risk, today I want to consider what I see as some key points in the present bullish narrative; the narrative that says this is, in fact, an ideal moment to be adding to risk assets (read stocks).

"An Expectations Problem" (video)

Dear Clients, this week's video commentary is an important one to take in when you have a few minutes... 😎

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Untenably Priced

Latest log entries.

But first a quote:

“The only way to make money in the markets is to be patient, disciplined and informed. You have to have the confidence to make decisions based on sound analysis and rational thought.” --David Shaw

8/27/2024

While I believe we're less-sanguine on the economy right here than is Bob Elliott, I find his analysis to be spot on... I.e., the conditions priced into US equities are virtually untenable in the foreseeable future.

@BobEUnlimited

US stocks don't have an earnings problem, they have an expectations problem. With expectations of 3% real gdp in 2H24, earnings growth to reach 16% y/y by end of '25, and an AI boom ahead driving 21x multiples, such lofty expectations are a setup for disappointment. 

The, Maybe (we'll see), Quote of the Year -- Or, at a minimum, perhaps another "warning sign"

In this week's written post, I said the following with regard to professional traders:

"...despite the present ever-rising risk, today’s trader believes that, in pure self-interest/preservation, they must continue to rock to the infamous 2007 tune played by ex-Citi  CEO Chuck Prince:

“... as long as the music’s playing you gotta get up and dance.”"

So, I'm sitting here this morning listening to the latest Market Huddle podcast, and I hear this week's guest, Louis-Vincent Gave, say the following:

Jobs Revision Says Something, Powell Doesn't Disappoint, Extreme Myopia, yada yada (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

"Underpinned By Emotion" -- And -- Signs

The latest action in equities has me thinking a lot about how to properly characterize the aggregate personality of the market at this moment.

I’m thinking about the institutional trader, the hedge fund manager, yada yada, and how they live and die by their running P&L… Those who are experienced, thoughtful and objective know that we are late-cycle, that valuations are extended, and that a potentially consequential repricing of stocks is likely in the not-too-distant offing… Nevertheless, we’re not there yet, the dips continue to get bought, and – as evidenced by the Bank of Japan’s jawboning reaction to recent hemorrhaging, and likely by this week’s Fed Jackson Hole meeting – the powers that wield policy have little stomach for downward volatility.

Economic, and Market, Risk Remains Elevated, Despite Wall Street's Insistence

Well, once again, we're having technical difficulties with our video software... Apparently our new "updated" version didn't correct the issue after all... We'll get with the vendor and be ready to go next week.

In the meantime, here are the visuals I had loaded up for this week, with some commentary:

Housing data say we’re not out of the woods, despite Wall Street's insistence.

Yesterday’s homebuilder sentiment reading (at 39 [under 50 = contraction]) was, let's say, not optimistic!

Plus:

"Let's Not Kid Ourselves Here"

As I type, stocks are rallying nicely in response to a cooler than expected Producer Price Index… The S&P, at 5398, is about to test what I, in last weekend’s video, suggested was a pretty compelling area of potential resistance (5,400)… Wednesday’s CPI print, followed by Thursday’s retail sales number will of course be key determinants as to whether stocks fold at that key technical level, or whether they blow right through it and try to recapture the S&P’s all-important 50-day moving average (currently 5450), and, not to mention, a few other technical barriers between here and the recent high.

Now, beyond all this short-term, largely technical, stuff, we have to focus on what, at this stage of the cycle – and at these equity market valuations – is the ultimate question: 

Narrative Flip, Sentiment Rush Typical of Extremes, Exit Liquidity Needed, Small Cap Head Fake, Etc. (video)

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The Yen's Not the Ultimate Risk Right Here, Some Survey Results, Equity Market Conditions, Buffett Cash, yada yada

Dear Clients, the following, from our internal log, is important stuff!

But first, a quote:

“Acting in excessive reliance on the fact that something ‘should happen’ can kill you when it doesn’t. That’s why I always remind people about the 6-foot-tall man who drowned crossing the stream that was 5 feet deep on average. You have to be able to get through the low points. And the success of your investment actions shouldn’t depend on normal outcomes prevailing; instead, you must allow for outliers.” —Howard Marks

What (And Why) We're Thinking About This Selloff (video)

Just a few thoughts on the latest action in equity markets.

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Are Markets Now Reflecting Fundamental Reality? (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Credit Card Pain, "Excess Savings" (And Inflation) Wane, The Fed's Set to Setup Rate Cuts

Credit Card Pain

While those who don’t see recession looming (looking out 6-12 months) will cite the fact that the upper half of income earners are still spending quite healthily, and that their spending represents the lion’s share of US consumption, we should nevertheless take the latest credit data seriously.

I.e., while the below may indeed reflect the pain among those not in the upper 50% of income earners, it nevertheless speaks to the evolving state of the economy, and, in our view, should be viewed as a serious warning sign:

'Technical' Rally Right on Cue! GDP Pops (some history), Ex-Fedhead Panicking, Global Economy Surprising (in a not-good way), yada yada

Well, alas, technical difficulties did not allow me to post this week's video commentary, so I'll just give you the highlights.

But first, a quote:

“Whoever wishes to foresee the future must consult the past.”

Niccolò Machiavell

Starting with the technicals, here's the 1-year daily chart for the S&P 500... Like I said last week, we'll see some nice rallies off of technical support.

Context! Dangerously Giddy While Economic Sentiment Wanes... No Top Yet, Although... and Conflicting Narratives All Priced In!

Update: The following content was posted yesterday for today's distribution... In the meantime, here's an entry to our internal log this morning:

Google (Alphabet) stock is getting slammed this morning on earnings comments that very much jibe with our concerns over the AI hype… They implied that patience will be needed when it comes to justifying the massive spending they and others are devoting to AI.

Like I said yesterday:

“With regard to AI, so far it’s all about companies competing to see who can spend the most on it, while seeing virtually zero offsetting profitability gains yet emerging… They’ll likely come, but there’s little evidence that said profitability will emerge to offset the bottom line hits – which tend to roil perfectly-priced markets – that’ll show up amid the heavy AI spenders in coming quarterly earnings reports.”

Context

I can't emphasize enough how all the hoopla over all-time highs in US stocks needs some serious context.

Essentially, the extent to which a mere handful of stocks have done all the lifting is historic (and, by the way, historically-unhealthy).

Here's from the 2021 peak, nearly 3 years ago... Note that while the S&P 500 and Nasdaq 100 cap-weighted indices (white and purple) have done okay since then (well, actually, since last December), the same stocks equal-weighted have produced just barely positive results for the S&P (green) and slightly negative results for the Nasdaq (yellow):

Adjust those for inflation and of course it's much worse.

Now, could, as some expect, the many ultimately catch up to the few, and thus extend the cap-weighted indices up trend far into the future?

Absolutely!

Should we, in the present late-cycle setup, bet the farm on it?

Absolutely not!

Overboughtness + Extreme Sentiment = Trouble, Some Housing Data, Shipping, Retail Sales, yada yada (video)

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Late-Cycle Dynamics, Retail Sales Surprise, AI Priced for Perfection, And, Again, the Yen

Small Caps Rally!!!

The action over the past week in the equity market has been extraordinary… Well, okay, I’ll just say it’s been unusual (at least seemingly, until you scroll further), to put it mildly.

It certainly bolsters the bull’s narrative that this historically-bifurcated market (the 10 biggest SP500 stocks doing ~80% of the year-to-date heavy lifting, the remainder utterly languishing) will be remedied via the rest of the market playing catch up.

Inflation Cools/Markets React, Stretched Sentiment, Fed-Cut Market Implications, Small Caps & the Yen (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Weekly Highlights: The Fed, Small Cap Prospects, The Yen, And a Critical Macro Thesis

Fed's Getting Worried

From Powell’s comments to congress today – it appears as though the Fed is beginning to fret recession risk right here:

Quote of the Day: The Difference Between Investing and Speculating

Suffice to say there's historic speculation priced into today's US equity market.

Definition: 

A Suspect Service Sector, Signals In the Jobs Report, September Rate Cut Likely, Market Implications, yada yada (video)

Dear Clients, here's another very important update on overall conditions to take in when you have a few minutes!

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Your Weekly Highlights (important stuff!)

Among the many things that have that tech bubble smell, the present valuation gap between US equities and the rest of the world is like nothing we've seen since then.

US (SP500) price to sales ratio in white, Developed Foreign Markets orange, Emerging Markets blue... Red arrow at the tech bubble peak:

And here's the actual performance for each from the tech bubble peak to the real estate bubble peak (US stocks returned essentially zero during that period):

"A Triumph of Hope Over Reality" (video)

Dear clients, here's a quick & easy one, but a very important one, to take in -- start to finish.

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Q3 Market Prospects, Have We Seen the Peak?, Concerning Analogs, Irresponsibly Bullish?, Nvidia, and Acceleration or Head Fake?

Dear clients, here are another set of comments we'd like all of you to take in, start to finish.

The following are key highlights from our latest internal log entries (with our latest [important] video commentary at the bottom):


After whatever correction the next few days or weeks delivers (if any), I expect the data to weaken as we move further into Q3, with stocks possibly rallying on the prospects for a September Fed rate cut... 

However, by the time we hit Q4 and/or Q1+ next year, the reality of recession likely sinks in, and -- while anything's possible -- we likely get our last leg down... I like that we're hedged to year-end.

Of course seasonality has to be mentioned, as a Q3 rally would be bucking the long-term worse-quarter-of-the-year trend.

Hussman sees potential for classic bubble-bursting bear market results:

I mentioned in our last video commentary the degree to which John Hussman sees stocks declining (to reach reasonable value) from present levels… While, as I explain in the video, that, in terms of magnitude, is not our base case, per the below it’s a view that demands our respect, and our attention. 

And, perhaps a touch contrary to my own short-term view mentioned above, he thinks we may have already seen, or are very close to seeing, the cycle peak in stock prices.

Here's from his latest public commentary:

Musing a Bit on Breadth, on History, on Recessions, on Valuations, and on When Buffett Was Considered a Buffoon (video)

Dear ALL Clients, this is for sure the one to watch, start to finish! Thanks so much for obliging, Marty 😎

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Key Highlights

Dear Clients, despite the Nasdaq sitting at, and the S&P 500 near, all time highs, this week's highlights from our internal log will not inspire confidence in the go-forward setup for stocks... Which, by the way, in no way means that the next bear market is imminent... It simply means that the risk is historically high right here, and that liquidity, diversification, and, in our view, hedging here and there with options is these days more than warranted.

In our candid view, prudent long-term investing is all about knowing when, and when not, to add risk... Suffice to say that today's overall setup is not the sort that you find at the early stages of a sustainable equity bull market... One could argue quite the opposite, in fact.

Charts of the Day: "Abysmal Breadth"

Dear clients, if you're wondering what keeps us cautious on equities right here, among other things, the following is, let's say, compelling.

From this morning's log entry:

A Head Scratcher Jobs Report, Mixed Signals Galore, and a Quick Look at Key Markets (video)

Note, in this week’s video I mentioned gold’s Friday decline and suggested that it was likely a reaction to the May employment report… And while the notable selloff in treasuries perhaps lends credence to that view, I had missed the fact that China’s central bank announced last night that it did not add gold to its reserves in May… Not doubt that was a not-small contributor to Friday’s action.

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Out Next Week, A Timely Quote and Some Key Highlights

Dear Clients, there'll be no written post next week, as I'll be on my annual Montana excursion, which once again has me offering up the link to an old blogpost that I believe has our all time highest hit rate.

Ironically, it has nothing to do with markets, so only take it in if you're in the mood for something touchy-feely.  

Here's the link to the 2020 version (disregard the days off mentioned, this time it's Tuesday - Saturday):  

http://blog.pwa.net/2020/09/gods-greatest-work.html

Now before we get to the highlights I wanted to share what I believe may ultimately turn out to be a timely quote.

At the end of Larry Montgomery's latest book, How to Listen When Markets Speak, he offered up the following message, which to a not-small degree concurs with our longer-term go-forward view:

Econ Update, Commodity Check, Our Near-Term Equity Mkt View vs The Technicals, Company Comments, yada yada... (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Key Highlights

Here are some selected highlights of key global economic and market data, signals, trends, etc., from our internal log over the past few days.

Be sure and read start to finish, as we cover lots of important ground over the course of a week.

Clients, if you'd like more color on any of the below, or anything else that went on in global markets/economics this past week (even if it's not featured below, there's a good chance I commented on it internally), please feel free to reach out.

Last Friday 5/24/24:

Per some of our recent tactical adjustments, we’re anticipating a decoupling among global economies… Europe, in spots, for example, had been in recession while the US continued to chug right along… Recent data suggest that Europe has bottomed, while we believe the US – despite yesterday’s positive PMIs – is in the process of peaking, if it hasn’t already peaked.

So, question being, can the rest of the world (we’ve seen some stabilization in China, for example, as well) sustain a new growth cycle, if/when the US slows markedly?

Signals From the Labor Mkt, Commodities, Breadth, Sentiment and So On -- And a Note on Nvidia (video)

Clients, please be sure and take this one in!

Thanks! Marty 😎

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Key Highlights

Here are some selected highlights of key global economic and market data, signals, trends, etc., from our internal log over the past few days. 

Be sure and read start to finish, as we cover lots of important ground over the course of a week.

Clients, if you'd like more color on any of the below, or anything else that went on in global markets/economics this past week (even if it's not featured below, there's a good chance I commented on it internally), please feel free to reach out.

Last Wednesday 5/15

CPI came in a bit softer than expected, core pretty much in line… Markets, bonds in particular, are, as expected (on soft data), rallying on the news… 

Weaker than expected retail sales for April didn’t hurt markets either – as weak news is good news presently (all eyes on the Fed); which, alas, tends to be the making of greater market pain if indeed weak news ultimately becomes recession news.

A September rate cut is now priced into fed funds futures, if data continue to weaken that’ll get moved up in a hurry; right now there’s a 30% chance of a cut in July.

Europe, whose equities we’ve been adding to lately, has a June rate cut presently priced in.

"Happy Talk", CPI, Copper -- And -- Yields & The Dollar (technicals) Are THE Tell On Equities Right Here (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Key Highlights

Here are some selected highlights of key global economic and market data, signals, trends, etc., from our internal log over the past few days.

Clients, if you'd like more color on any of the below, or anything else that went on in global markets/economics this past week (even if it's not featured below, there's a good chance I commented on it internally), please feel free to reach out.

Last Wednesday 5/8


BCA’s US Equity Strategy Team’s remarkably accurate model is the most bearish it’s been since I’ve been following it… Chief strategist Peter Berezin, however, sees potential near-term upside should data begin to weaken soon, as the market will likely rally on the notion that the Fed will, thus, become measurably accommodative... Which is my current base case as well.

Last Wednesday 5/8

Despite it being down slightly since we put on our small starter position, I’m liking the longer-term setup for the yen right here.

My view from the get-go is far more basic than the rantings of those who see a currency crisis in the making… I.e., it’s simply a matter of macro cycle timing and interest rate differentials.

Consumer Credit, Cat Sales, Shipping Costs, Earnings Comments, Stocks, Yields, the Dollar and Gold (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Key Highlights: Near-Term Setup, Value Elsewhere, Labor Market Signals, Waning Business Sentiment, Etc...

Here are some selected highlights of key global economic and market data, signals, trends, etc., from our internal log over the past few days.

Clients, if you'd like more color on any of the below, or anything else that went on in global markets/economics this past week (even if it's not featured below, there's a good chance I commented on it internally), please feel free to reach out.


Last Thursday 5/2
Generally speaking, it’s pretty clear that the market (equity mkt in particular) is pricing in a soft landing and strong go-forward corporate earnings growth.

Given that there are sufficient leading indicators to cause concern, the soft landing thesis continues to stand on shaky ground, which of course conflicts with that forward earnings bullishness.

Ironically, while my stated concern ultimately leads to consequently-lower equity prices, along the way to a harder-than-priced-in-landing, a notable rally in equities (classic “blowoff top” perhaps) is very much on the cards – as the economy/inflation cools.

Bottom line, the likely equity market transition for the no-soft-landing scenario sees stocks flat to down as long as inflation remains elevated… Then stocks rally as the economy and, thus, inflation cools… Then stocks finally rollover when recession becomes reality… Then a fundamentally-sound buying opportunity presents itself.

Labor Mkt Signals and Their Investment Implications, Other Relevant Stuff!, Earnings Comments, Etc. (video)

Clients, please be sure and take this one in when you have a few minutes. 

Have a nice weekend!

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Key Highlights: GDP Stuff, Less-Hot Cocoa, Dollar Bulls Aplenty, Employment Costs A Problem, Consumers Less Confident, The Fed, yada yada

Here are some selected highlights of key global economic and market data, signals, trends, etc., from our internal log this past week.

Believe it or not, in a feeble attempt at brevity, I cut a ton out... So, clients, if you'd like more color on any of the below, or anything else that went on in global markets/economics this past week (even if it's not featured below, there's a good chance I commented on it internally), please feel free to reach out.

Old "Rules" Don't Apply!

Well, I'm already breaking my own new rule, by publishing two blog posts on the same day... Can't resist it this morning... I.e., I don't want this one to get lost in the shuffle of next week's summary.

This morning's log entry:

4/27/2024

This from Grant Williams' podcast guest is, in essence, what I’ve been describing during client review meetings of late…

I.e., In terms of what he says about how policy will be implemented going forward, I couldn’t agree more!

Emphasis mine:

GDP, Consumer Confidence, Commodities, Stocks, Yields, the Dollar, Gold and Earnings Call Comments (video)

I somehow failed to mention the market implications of next week's treasury quarterly refunding announcement... Before you click the play button, here’s from our internal notes: 

4/23/2024 

Next week’s QRA (the treasury’s quarterly refunding announcement) is likely to be big for markets. 

If Yellen wants to concentrate go-forward issuance on the short end of the curve, that’s easy for the market to absorb and bullish for equities. 

If, on the other hand, she signals that issuance will concentrate on the long-end (far more difficult for the market to absorb (i.e., yields higher), that’s bearish. 

With regard to the TGA (treasury general account), if she sets a high target (i.e., much bond issuance proceeds get stuck in the TGA, as opposed to being spent in the economy), that’s bearish. 

If she sets a relatively low target (i.e., more juice going into the economy), that’s bullish. 

Her track record thus far – not to mention, incentives – leans heavily toward t-bill concentration and a lowish TGA target (i.e., she definitely wants to keep financial markets buoyant going forward)... Problem being, that would be economically-stimulative, which might problematically offset what would otherwise be hugely bullish (operative word their being “might”) for equities... I.e., a resilient economy means sticky inflation, and sticky inflation means no aggressive rate cutting over the next few months, which could be a real downer for equities going forward. 

Nevertheless, if we're talking relatively light issuance (less than last quarter) focused on the short-end of the curve, and, again, a lowish TGA target, stocks are likely to, at least initially, rally on the news.

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Key Highlights: Beige Book Caution, A Manufacturing Head Fake (maybe), Overbought Commodities, and A Potentially Waning Consumer

Here are the latest highlights of key global economic and market signals, trends, etc., from our internal log... Be sure and peruse all the way to the end, as we highlight a broad range of topics.

4/19/2024

Equity futures, bonds, currencies, commodities all reacted aggressively to the initial news of Israel’s attack on a military base in Iran… As the dust settled it became clear that the attack was limited in scope – i.e., tit for tat – and, therefore, for the moment, not a market event… As I type, 7:04am, the S&P is flat, the Nasdaq’s off 56 bps, yields are down a bit, gold’s up 25 bps, the dollar’s down 21 bps and oil’s flat.

4/19/2024

The latest Fed Beige Book release (a view from each of the 12 districts) points to an economy that continues to expand, albeit at a snail's pace at this point, and a consumer who is, on balance, becoming more cautious on spending… Inflation signals are mixed, but, on balance, somewhat problematic for businesses as their pricing power now seems to be fleeting.

Economic Update: Mixed Data, Earnings Call Comments, Stocks, Yields, the Dollar, and Atypical Gold (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Macro Highlights: Is Inflation and Employment Peaking?, Mixed Retail Sales Results, Hot Cocoa, And An "Income-Driven Expansion"

Here's a summation of the key global economic and market signals, trends, etc., that we touched on in our internal log in recent days... Be sure and peruse all the way to the end, as we highlight a broad range of topics.

4/18/2024

Yesterday saw a rebound in our commodity-oriented, non-US equity and fixed income positions, essentially resulting in a resumption of the recent trend where our core allocation notably outperforms the broad US equity averages. That said, and to be clear, this week’s comments in that regard should not be taken as me suggesting that equities are a benchmark that we strive to match or beat, they’re not, it’s simply an observation, given that our industry indeed scores itself relative to equity markets, which, in my view, is a potentially dangerous distraction from the task of responsibly managing (and risk-managing) client portfolios.

Economic Update (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Macro Highlights

Dear Clients, per my last note, you'll be receiving fewer blog notifications going forward, as we're now summarizing for you the key global economic and market signals, trends, etc., that we record in our internal log each week... Be sure and peruse all the way to the end, as we highlight a broad range of topics.

As this week comes to a close, the world is on heightened alert over concerning signals that an attack on Israel by Iran is imminent. 

Resulting in stocks down, oil, gold and bonds up in early Friday trading.

Here are some key bullet points from this week's log (clarification added parenthetically):      Have a nice weekend!

Changing Up The Blog A Bit

Dear Readers,

You'll be receiving fewer blog notifications going forward, as we've decided to forego sending out a daily note. Instead we'll be offering up a concise weekly summation of the thoughts and the data we compile each day in our internal macro log. Along with the usual video report on our findings from the weekly scoring of the PWA Index -- where we'll throw in some commentary on the weekly scoring of our financial stress and sentiment indices as well.

The technical market updates will continue, but, to avoid redundancy, I'll produce those only when there's a notable change in the technical setup across equities, yields, the dollar, etc.

Plus, we'll continue to summarize for you the results of the monthly scoring of our equity market conditions index as well.

The goal here is to be less piecemeal, and, thus, to provide a more accessible and succinct accounting of what our work says about the ongoing state of general investment conditions.

Your feedback of course is always welcome.

Thanks so much,
Marty

Economic Update: Hot Jobs Number And Strong Equity Market Reaction, What Gives? (video)

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:

Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

More on Sentiment, Valuations, the Technicals, and What Will Move Stocks Big (Up or Down) In the Short Run (video)

Dear Clients, here's yet another important one to take in! 

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:

Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Key Highlights

 Key highlights from our latest messaging herein:

Yesterday:

Stocks continued to advance over the past month, despite the notable headwinds outlined in our February report.

While sector leadership remains bullish – and breadth has improved notably – valuation, sentiment and the technicals, in particular, continue to reflect significant downside risk going forward.

Bottom line: Per the above, and the entirety of this report, current overall conditions leave us uninspired to add measurable equity market risk, or to hedge less, at this juncture.

Equity Market Conditions Update

While, per the below, the monthly scoring of our own "Equity Market Conditions Index" (EMCI) denotes improvement in the overall setup, general conditions remain stressed to the point that demands that we remain very diversified, liquid, and continue to hedge against something potentially consequential to the downside -- while maintaining sufficient exposure to responsibly participate in the current uptrend.

The following captures the intro to our internal report, and, to follow up on yesterday's message, features the inputs to our assessment of valuations. We also featured the section on economic conditions, which we considered upgrading to neutral, although, as you'll see in the brief narrative, wasn't justified just yet.

Have a great day!

Euphoria Has Set In, And Your Weekly Results Update

I mentioned in a recent video commentary that we are probably spending more time of late assessing narratives that don't jibe with our present view of general conditions, versus those that do -- as open-mindedness and objectivity are absolute musts for us... Well, I'm definitely not doing that in this post when it comes to the present risk/reward setup for US stocks.

Those of you who've been taking in our latest messaging will find the following very familiar... I.e., Peter Boockvar shares our present concerns:

Mixed Signals, Insider Selling, Two-Tiered Markets, and Diversification Is THE Key Right Here (video)

Clients, this one's a must watch, start to finish!

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:

Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

A Quick Look at Stocks, Yields, the Dollar, the Euro and the Yen (which we just added) (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: All Things Equal?

There's essentially very little to add this morning to our last two video commentaries.

In a nutshell:

1. Fed Chair Powell is comfortable setting market expectations at 3 rate cuts this year -- in essence dismissing the latest inflation data -- no longer, for the moment, concerned with an early 80s repeat... I will, however, add that not all on his team are on board, as we'll likely hear from some select commentary this week.

2. The economic data are improving, particularly in the manufacturing space -- notably reducing the odds of near-term recession -- i.e., likely, at a minimum, pushing the start-date further out.

3. Equity market technicals, and sentiment, point to increasing odds of an equity market pullback sometime over the next few weeks.

4. Given reduced recession odds, and an on-balance accommodative Fed, all things equal, odds would favor a buying of any decent near-term dip in equities.

5. #4 notwithstanding, there is large leverage (in the derivatives space in particular) underpinning these levels, which means a cracking of certain levels to the downside could indeed spark something far more meaningful than simply a buyable dip... That said -- and, again, all things equal -- odds favor #4.

6. We nevertheless -- given certain elements of the overall setup (present macro dynamics, risks highlighted above, historically high valuations) -- need to accommodate (via liquidity, diversification, and hedging) for the fact that, in markets, all things are indeed not always equal.

In case you missed them:

The Data Are Improving -- Implications, Considerations -- And Some Mixed Signals From the Earnings Calls (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

So What's Motivating the Fed Right Here? And What's Gold Signaling? (video)

This morning's analysis is nearly all narrative on what may or may not be behind the Fed's dovish tone amid reemerging inflationary forces, and on what gold's impressive rally may or may not be signaling.

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:

Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Come Hell Or High Prices! And, Gold and Stocks Hit Highs Simultaneously -- That A Good Thing?

Stocks, at historically high valuations, seemed a bit jittery heading into yesterday's Fed rate decision and Powell’s press conference... And, per the below, rightfully so.

YTD % change in the price of a gallon of gas:

of a barrel of oil:

of a plateful of food:

and a copper pipe:

Morning Note: Boggles (and troubles) the Experienced Mind! And Your Weekly Results Update

So, the "magnificent seven" stocks that pretty much explain 2023's rally now represent a greater market cap than every equity market on the planet, save for only the US's:

The odds of this ultimately not ending well are, well... let's just say they're too high for comfort!

As is -- as we've been pointing out of late -- sentiment right here:

Economic Update: Problematic Inflation, Some Important History Of Our Assessment, And A Quick (important) Stock Chart Update (video)

Attention Clients, while all of today's video analysis is timely, please be sure to watch from the 6:45 mark on, where I chart our assessment alongside the equity market over the past few years... I.e., while we've generated positive returns even as our recession light remains lit, the current macro backdrop, and, not to mention, history, virtually demands that -- while we'll continue to seek out and exploit value where we find it -- we stay broadly diversified, liquid, and hedged against the potential for something swift and meaningful to the downside, at least for the time being. 

But first, a timely quote from an investing great:

“The desire for more, the fear of missing out, the tendency to compare against others, the influence of the crowd and the dream of the sure thing—these factors are near universal. Thus they have a profound collective impact on most investors and most markets. This is especially true at the market extremes. The result is mistakes—frequent, widespread, recurring, expensive mistakes.” —Howard Marks

Thanks so much! Marty

Note that, where (at the 6:12 mark) I say "staples were ramping up" heading into, and during, past recessions, sends an incorrect message. They weren't, per se, ramping up during recessionary periods, they were just substantially outperforming (at times losing significantly less than) discretionary stocks.

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:

Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Valuations & Sentiment Paint a Precarious Picture For Stocks (video)

Dear Clients, in today's snapshot I touch on the typical, and historically-dangerous-to-chase, pull-forward nature of parabolic moves.

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: Patience, an "absolute must!" --- (a must-read post for clients!)

To be sure,

"if patience is a virtue in life, it is an absolute must in trading and investing."

--Randy Finney (technical analyst and trader)

If you tend to think of stocks and your long-term portfolio synonymously, well, if you're a PWA client, I'd say don't! But recognizing that Wall Street has done such a masterful job of engraining such thinking into investor-psyche, the following is intended for those who do.

Morning Note: Key Highlights

This morning's inflation data, in the aggregate, came in a touch hotter than expected, but not to the point -- at least in pre-market action -- to derail the equity market's expectation of a mid-year rate cut.

Meanwhile, here are a few key highlights from our latest messaging herein:

Economic Update: Amid Mixed Signals, Evidence of Weakness (in labor and credit in particular) Remains Too Much To Ignore (video)

Attention clients, please be sure and take this one in when you have a few minutes.

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:

Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Strong bullish sentiment "hints at a top," although..... And a quick stocks, yields, dollar and gold update (video)

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:

Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: Manufacturing "Mini Upcycle" -- And -- Beware "The Other Side of the Parabola"

In our latest economic update I entertained the notion that the recent strengthening in manufacturing sector sentiment might prove to be a head fake.

On Monday, BCA suggested that that may indeed be the case:

A Check In the Magazine Cover Box, Some Mixed Signals, Stocks, Yields, the Dollar and Gold (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: Giddy Media, But Not Over Gold -- And Your Weekly Results Update

Fascinating: The media, and Wall Street, are giddy over bitcoin nearing all time highs, and over the S&P 500 (I'd say "stocks" but the majority of stocks are clearly not there) at all time highs, while nary a mention of gold punching its way into never-before-seen territory.

Of course that, all by itself, has to have gold bulls feeling very good about their positioning right here.

I.e., long-term tops typically do not occur when upside breakouts go unnoticed -- suggesting that the asset in question remains under-owned.

The following, on the other hand, is the sort of signal you look for when you're concerned that present levels may be dangerously over-owned:

Economic Update: A Manufacturing Recovery or Head Fake? The Inflation Bugaboo And Some Telling Earnings Call Highlights (video)

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:

Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Another Look At Wall Street's Hopes, A 3-Year Look At the Technicals, Some Data, etc. (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: Will Wall Street Get What it Wants?

I couldn't agree more with the first line in the following quote.

"Wall Street forecasts what it wants, it doesn't forecast necessarily what's going to happen.  

Now, sometimes, what it wants happens and their forecasts are prescient. 

What Wall Street wants right now is lower interest rates. 

They want lower rates because they see 5% money market rates as competition for the stock market."  

--Jim Bianco

Stock Market Snapshot: Not What An Early-Stage Bull Market Typically Looks Like (video)

Dear Clients, here's a very brief, yet important, assessment to be sure and take in.

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:

Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: The 'F' Word -- And Your Weekly Results Update

If you're getting tired of hearing about inflation, or the potential lack thereof going forward, sorry, this will be a top topic of discussion for I suspect many years to come.

As for the time being, recent "hotter" than expected CPI and PPI -- potentially PCE this week -- notwithstanding, I do believe that before the current cycle runs its ultimate course, those who, on behalf of their stock positions, pray for dis(or de)flation will indeed see their prayers answered in the affirmative.

Thing is, beyond the knee-jerk rally that'll no doubt come on "cooler" inflation data and sweettalk from the Fed, there's, alas, that 'F' word that'll ultimately be rolling off the tongues of many a Wall Street analyst, economist, market guru, yada yada!

Pockets Of Strength, What the Fed -- Despite Their Panicky Impulses -- Hopes to Avoid, and Ubiquitous Copper (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Game Still On For AI Stocks, And An Overall Equity Market, Yields and Dollar Snapshot (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: While Some Key Conditions Improve, Leading Indicators Still Warn, And Healthcare Well-Positioned

The following from BCA's narrative around this week's US Leading Economic Indicators (LEI) release should sound very familiar to clients and regular readers:

"Indeed, the US economy has been robust and the data do not point to an imminent recession. Financial conditions have eased, home prices have risen and consumer sentiment has rebounded. All these factors are supporting economic activity.

However, our base case remains that a recession is likely in late 2024 or early 2025. Beneath the surface of the resilient labor market, some of the leading indicators are weakening. Similarly, default rates on credit cards and auto loans have risen and the tailwind from excess pandemic savings is fading.

Stock Market Snapshot and a Look at NVDA's Technical Setup (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.