Thursday, February 29, 2024

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

Jim sees between zero and two rate cuts this year, but is presently leaning more toward zero.  So, in his view, 2024 will be a year where Wall Street does not get what it wants.  

He, thus, does not see recession looming, so

"...when you sum it all up the Fed is going to find it very difficult to cut rates."

And then there are the likes of BCA's Peter Berezin, he was in the lonely no-recession camp in 2023 ("lonely" since the overwhelming consensus had 2023 as a recession year going in).  As we sit here today, however, he sees recession coming late-this year or early next. 

Here's a tidbit on the consumer he offered up last Friday:

"The US consumer is in great shape except that credit card delinquencies are at their highest level since 2012 (when the unemployment rate was 8%), credit card interest rates are at record highs, banks are increasingly unwilling to make consumer loans, pandemic savings have been largely wiped out, and the savings rate is half of what it was in 2019."




Then there's yours truly, who, as I suggested Monday, believes that what Wall Street currently wants isn't ultimately what's in its own best interest:

"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!

That word being Fundamentals!

You see, there's this thing called a profit margin, which measures the space between what a company spends to produce its wares and the price at which it charges its customers... And of course when we're talking in(dis or de)flation, we're talking about the latter.

You know where I'm going with this: If inflation's ultimately coming down, the overall pace of price increases is by definition coming down as well... And if recession indeed arrives along the way, we're no longer talking the pace of price increase, we're talking outright price declines in many venues... Venues where, for one example, the cost of labor has risen at an historical pace these past few years.

And what happens to profit margins in such a scenario? Stock prices? Jobs in general?"

Per the above, and per our latest economic update (hit the play button below), we sympathize more with Peter at this juncture.

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.

Asian equities leaned green overnight, with 9 of the 16 markets we track closing higher.

Europe's rallying so far this morning, with 13 of the 19 bourses we follow trading up as I type.

US equity averages are up to start the session: Dow by 73 points (0.19%), SP500 up 0.48%, SP500 Equal Weight up 0.60%, Nasdaq 100 up 0.72%, Nasdaq Comp up 0.81%, Russell 2000 up 1.55%.

This morning the VIX sits at 13.40.

Oil futures are down 0.20%, nat gas futures are down 1.17%, gold's up 0.75%, silver's up 1.13, copper futures are up 0.47% and the ag complex (DBA) is down 0.41%.

The 10-year treasury is up (yield down) and the dollar is down 0.17%.

Among our 36 core positions (excluding options hedges, cash and money market funds), 32 -- led by GDX (gold miners), XME (base metals miners), URNM (uranium miners), SLV (silver) and EWM (Malaysian equities) -- are in the green so far this morning... The losers are being led lower by EWZ (Brazil equities), EIDO (Indonesia equities), DBA (ag futures) and XLV (US healthcare stocks).

"...simply, our faster emotional machinery leads, and our slower “reason” follows."

--Bernstein, William J. The Delusions of Crowds: Why People Go Mad in Groups 

Have a great day!

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