On Fed Incentives, And Your Complete (and Important) Weekly Macro Rundown

According to macro analyst, liquidity expert and research provider Michael Howell in this week's Macrovoices podcast, the odds of the fed hiking interest rates relatively soon are exceedingly high... As you'll see in the following, I don't entirely sympathize.

He cites the predictive ability of 2-year treasury yields: 

"It's correct 85% of the time."

And on that I concur, as this is an indicator we have tracked very closely for years.

Here's our chart (orange line = 2yr yield, white line = fed funds rate)... Note how the current setup -- historically-speaking -- virtually assures a coming fed hike:

Some Caution on the Favorable Inflation Prints, Why We Like the Yen (again), And a Few Other Things

Lots to consider this week (underneath the headlines) in terms of data, the Fed, geopolitics, yada yada.

Thus, this weekend's macro analysis will be robust.

In the meantime, the following note will bring you up to speed.

Must-Read Macro Note

Our intro to this week's macro roundup consists simply of a handful of key/telling market highlights from my commentary over the past couple of weeks.

If you’d truly like to glimpse the forest through the trees, the macro note itself -- in terms of what’s happening below the surface and how we’re positioned for it -- is a must-read!  

This Fed is Different, AI's Inflation Impact, Gold Setup, etc (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.

Divergence

Now, make no mistake, I'm not complaining! I can't not like the results so far this week... That said, the under-the-surface dynamics are not remotely confirming what the headlines portend.

For example: The top panel is the S&P 500... The upward trend line captures the past 4 trading days, including today... The second panel measures the number of advancing stocks in the index vs the decliners through yesterday:

That's what's called a negative or "bearish" divergence.

As for today, so far, breadth isn't terrible, with roughly 65%/35% up vs down stocks, but still not all boats rising with the tide.

As for the sectors, once again, under the headline surface there are losses being taken in 5 of the 11 major sectors as I type:

Nothing to get too excited about, just what I view as a late-cycle dynamic to respect.

Crosscurrents!

This week's note offers important insight into what's developing at and below the surface... I.e., while our PWA Index shows real, and legitimate, signs of life, there remain underlying crosscurrents that to some extent muddy the overall go-forward macro setup.

As for the equity market, as I emphasized herein during the week, on the surface (the S&P 500) stocks ended up churning out a nice showing:

While, below the surface, not so much!

6 of the 11 sectors are finishing (as I type, 40 minutes before the close on Friday) in the red:

I.e., thanks to Amazon, and Alphabet -- moving the consumer discretionary and communication sectors up a ton -- the headline tape essentially misrepresents the overall message of the market for the week.

Said message being, the late-cycle is a period of heightened uncertainty and speculation, often characterized by aggressive rotations... This particular instance being exacerbated by a seriously-stressed geopolitical backdrop.

Here's this week's PWA Index scoring summary, followed by our latest important macro deep dive (clients, this is a must-read):

The Tape Is Lying To You; Day 2

Now, to be sure, there have been many days of late deserving of a post titled The Tape is Lying, it's just that yesterday's and so far today's unusually so.

As I type, 6:40am PDT, the Dow is clinging to a 90-point gain, while the S&P 500 and the Nasdaq 100 are up by 0.17% and 0.55% respectively, so the market's up, albeit slightly, right?

Well, actually, no... Or, not mostly, I should say.

While, thanks to Amazon, our consumer discretionary position is up a very nice 2.7%, and Microsoft is delivering a second day of gains, up 2% so far this morning, virtually everything else is either essentially flat, or down a little, or a lot... The latter among US sectors being, materials -2.4%, staples -0.81%, healthcare -1.17%, financials -0.26%, industrials -0.76%, tech -0.47%... Even small caps -0.,74%, gold -2%, silver -3.2%, metals miners -1.34% are taking a hit this morning as well.

So, again, while the headline tape reads green (although, as I continue to type, the Dow has given it up, and the S&P is hugging the flatline), the broader complex of risk assets reads red, pretty much across the board.

In a nutshell, today's market is searching for direction amid what would be late-cycle dynamics exacerbated by a geopolitical situation that itself is sorely in need of direction -- or, let's say, in need of a durable solution.

Of course there's lots going on under the surface, described succinctly in the following: