Morning Note: Market-Friendly QRA -- And -- UBS and JPM Share Our Concerns

In our latest economic update I mentioned the Treasury Quarterly Refunding Announcement (QRA) as being potentially bigger this week than even the Fed meeting.

While yesterday's announcement of the anticipated debt issuance needed this quarter (came in less than expected) definitely juiced the equity market,

it's the complexion (short-term bills vs long-term bonds) of said issuance that markets will likely be even more focused on come Wednesday... I'm guessing the treasury will aim to not roil markets with that announcement... And, per this morning, not-roiling could lead to yet another pop higher.

Now, the Fed will issue its latest rates, etc., decision on Wednesday as well, and if last month's presser is any indication, Powell will also effort mightily not to roil markets.

Aside from near-term potentially market-moving dynamics manipulation, UBS is not as sanguine (Sees A Difficult Phase for Global Stocks in 2024) on equities as some going forward... This will sound familiar to clients and regular readers:

"UBS Group strategists are forecasting a challenging period ahead for global equities, which are currently trading near all-time highs.

The strategists express concerns about the sustainability of significant revenue gains in a slowing economic growth environment, noting this as a "very unusual" mismatch in a recent Monday note.

Their primary concern revolves around the prospect of earnings disappointments, largely due to a combination of rising wages and the delayed effects of higher interest rates. These factors could potentially threaten profit margins across various sectors.

The concern is that as economic growth stalls, the ability of companies to sustain high revenue growth becomes increasingly questionable, particularly in a context where operating costs are rising.

The MSCI World Index, which represents developed-market stocks and is heavily influenced by high-performing tech companies, is currently just below its all-time high. However, the UBS strategists' outlook suggests that this rally might face headwinds."

As will this:

"The extreme concentration of the biggest stocks in US equity markets is increasingly drawing similarities with the dot-com bubble and raises the risk of a selloff, JPMorgan quants warned. Stretched valuations — though less excessive than in the 2000s — suggest their dominance may be near its limit."

Stay tuned...

Asian equities leaned red overnight, with 9 of the 16 markets we track closing lower.

Europe is mostly green far this morning, although barely, with 15 of the 19 bourses we follow trading up as I type.

US equity averages -- amid, still, stinky breadth (60% of the members, and over half of the sectors, of the SP500 are down as I type) -- are slightly lower to start the session: Dow down 19 points (0.05%), SP500 down 0.02%, SP500 Equal Weight down 0.09%, Nasdaq 100 down 0.20%, Nasdaq Comp down 0.15%, Russell 2000 down 0.46%.

This morning the VIX sits at 13.64.

Oil futures are up 0.57%, nat gas futures are up 1.22%, gold's up 0.69%, silver's up 0.20%, copper futures are up 0.21% and the ag complex (DBA) is up 0.33%.

The 10-year treasury is up (yield down) and the dollar is down 0.25%.

Among our 33 core positions (excluding options hedges, cash and money market funds), 16 -- led by URNM (uranium miners), EIDO (Indonesia equities), SPTL (long-term treasuries), GLD (gold) and LTPZ (long-term TIPs) -- are in the green so far this morning... The losers are being led lower by EWZ (Brazil equities), VWO (emerging mkt equities), Dutch Bros, XLRE (REITs) and XLE (energy stocks).

From Jack Schwager's enlightening interview with Colm O'shea:

"...you shouldn’t expect a big bull market to end in any rational fashion. The smart managers will be managing less because they don’t look as good as the bulls, since they’re going to have lower net long exposure?

Right. Because the bulls control most of the money, you should expect the transition to a bear market to be quite slow, but then for the move to be enormous when the turn does happen. Then the bulls will say, “This makes no sense. This was unforeseeable.” Well, it clearly wasn’t unforeseeable."

--Schwager, Jack D.. Hedge Fund Market Wizards: How Winning Traders Win

Have a great day!
Marty