Thursday, February 1, 2024

Morning Note: The Ultimate/Obvious Conundrum

Yesterday's QRA (we've explored this topic herein this week) wasn't quite what the market (the bulls) expected, but it nevertheless didn't seem to move the needle when released -- i.e., it didn't move the S&P and the Nasdaq -- suffering from disappointing news from the tech space -- out of their pre-market red.

As the morning progressed, news came out that New York Community Bancorp reported a surprise Q4 loss and a cut to its dividend... Commercial real estate loan exposure was the culprit, which, as you might imagine, spooked equities and kept a bid under bonds.

Then came the Fed announcement, that essentially poured cold water all over the bulls' notion that rate cuts are to begin come March.

Just for "fun," and to confirm the prevailing character of equity market trading, I kept the SP500 minute chart live on the screen next to my screen that featured Jerome Powell's presser.

And, for certain, nothing about the stock market's gyrations disconfirmed our view that bad news -- which could inspire the start of the next rate cutting cycle -- is good news... I.e., any hint that things are indeed slowing was met with buying, while any hint that the economy was resilient was met with selling. 

The irony -- that is clearly lost on today's investor, who either hasn't invested through previous cycles, who suffers from amnesia, or who believes that this time will be different -- is that the weaker data they are clearly yearning for is, alas, on the normal glidepath from here to recession.

Now, honestly, we aren't entirely unsympathetic to the "this time is different" possibility... Reason being, the powers that be have set a precedent that justifiably has consumers believing that the government will not only be there to support their income when the next recession hits, but to support their discretionary spending impulses as well... Which might have one expecting only the mildest of recessions should one occur in the coming months... But of course there's this ultimate/obvious conundrum stemming from what inflation would do under such circumstances -- as there are indeed stronger structural forces in play these days!?!

Powell essentially quelling the notion of a March rate cut was the proverbial straw in yesterday's session.

Clearly, the short-term technicals, we ran through yesterday (video), got it right.

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 11 of the 19 bourses we follow trading up as I type.

US equity averages are up to start the session: Dow by 56 points (0.15%), SP500 up 0.50%, SP500 Equal Weight up 0.20%, Nasdaq 100 up 0.56%, Nasdaq Comp up 0.78%, Russell 2000 up 0.98%.

As for yesterday's action, US equity averages traded notably lower: Dow by 0.8%, SP500 down 1.6%, SP500 Equal Weight down 1.3%, Nasdaq 100 down 1.9%, Nasdaq Comp down 2.2%, Russell 2000 down 2.5.

This morning the VIX sits at 14.04.

Oil futures are up 1.11%, nat gas futures are up 0.48%, gold's up 0.48%, silver's up 0.17%, copper futures are down 1.20% and the ag complex (DBA) is up 0.09%.

The 10-year treasury is up (yield down) and the dollar is up 0.205%.

Among our 33 core positions (excluding options hedges, cash and money market funds), 26 -- led by URNM (uranium miners), LTPZ (long-term TIPs), AT&T, EWW (Mexico equities) and XME (base metals miners) -- are in the green so far this morning... The losers are being led lower by Johnson & Johnson, XLF (financial stocks), XLP (consumer staples stocks), XLRE (REITs) and SPTS (short-term treasuries).

"Markets don't "know something" that others don't. Prices are just the weighted average guesses of all the buyers/sellers about what will happen in the future.
And while I'm at it, the Fed doesn't "know something" either. They look at all the same stuff available to the market."

--Bob Elliott 

Have a great day!

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