The Morning Call
4/13/26
The
Market
Technical
Spectacular week for the S&P. It finished above all three DMAs---resetting
the 50 DMA to support with the 100 and 200 DMAs on track to revert to support today
if the S&P can hold above those levels.
Plus, the index broke above that short term downtrend marked by a series
of lower highs. Clearly, all very
positive and could certainly be the beginning of a recovery in upward momentum.
That said, as I reiterated all last week, the turd in the punchbowl is that
huge gap up open on Wednesday. I have my Buy List; but I continue to wait for
the next low before considering that the worst is over.
TLT was down
fractionally on the week; hence, remaining below all DMAs and in downtrends
across all major timeframes. With stagflation the likely result of the destruction
wrought on the oil infrastructure, I am hard pressed to think that bond prices
are going to improve markedly.
Gold continued its
comeback. But it is still too short a time span to have confidence that the
worst is over. The good news is that (1) it has reestablished its 100 DMA as
support, (2) it remains in uptrends across all time frames and (3) still has
those two gap down opens overhead that need to be filled. I continue to hold a
one half trading position in GDX.
The dollar broke that very short term uptrend marked by
series of higher lows. In addition, it
is now challenging both its 100 DMA (if it remains there through the close on
Tuesday, it will reset to resistance) and its 200 DMA (if it remains there through
the close on Wednesday, it will reset to resistance). Finally, the macroeconomic backdrop of the US
economy (slow growth and rising inflation) suggests a lower dollar.
Friday in the
charts.
Summary:
The fragility of the US-Iran ceasefire remains the paramount focus of
the market. Stocks were unimpressive today (into an
event-risk-packed weekend of talks) to cap a big week dominated by the c-word (ceasefire,
not the other c-word which we have been using for the last five weeks).
Everything flipped on Tuesday with oil down bigly, stocks up yuuge, and bond
yields falling (but no real acceleration from that initial burst of
activity). The dollar dumped, gold and bitcoin jumped as growth
macro signals actually improved relative to inflation fears.
Friday in the technical stats.
https://www.barchart.com/stocks/momentum
https://www.barchart.com/stocks/market-performance
https://www.barchart.com/stocks/sectors/rankings
https://www.barchart.com/stocks/signals/new-recommendations
The latest from
Goldman.
Summary:
Risk/reward here doesn’t look great. Supportive forces still exist...vol
control and CTAs likely still buyers absent a sharp drawdown (CTA's buy in all
scenarios). But the negatives are building..1.) credit concerns
(especially private credit) cap upside, 2.) software/growth still
facing structural multiple pressure, (IGV collapse is meaningful) 3.) rates/inflation regime
has shifted in a way that won’t quickly reverse, and consumer/labor remain
overhangs .Net…there’s still a bid under the market from positioning and
residual pessimism, but it’s weaker than a week ago. The instinct to
run the “round 1 failure…buy for round 2 talks” playbook is there…but levels matter.
Market still feels too high to be structurally long. Watch rates as the
north star, and credit as the confirmation signal now that last week’s squeeze
has cleaned things up.
Monday morning
setup: Stock futures are lower, but off their worst levels of the session, as
Brent crude surged 7% to over $102 after Trump ordered a blockade of
the Strait of Hormuz to take place at 10am ET. The moves look relatively
contained given the breakdown of US-Iran talks, with strategists saying
this is a moment to buy the dip. Goldman Sachs is kicking off the earnings
season shortly with earnings that missed on FICC revenue, sending the stock
lower. As of 8:00am ET, S&P 500 futures and Nasdaq 100 contracts were
both 0.7% lower with all Mag 7 names lower and Defensives leading Cyclicals
ex-Energy. According to JPM, the market continues to price in a resolution
leading to a lower than expected set of global losses, even as the situation
remains a race against the clock with the world on the brink of an economic
calamity; JPMorgan's commodity team has updated the timeline with impacts from
shorts becoming more acute this week and through early May. Bonds trimmed
initial losses, with the two-year Treasury yield up three basis points to 3.82%
while 10Y yields also rise 3bps to 4.35% . The dollar rose 0.3%, its biggest
advance in more than a week. Commodities are higher led by Ags and Energy with
gold moderately lower near $4,710 an ounce as the dollar rose. US
economic data calendar includes March existing home sales at 10am New York
time. Fed speaker slate includes Miran at 6:20pm
Fundamental
Headlines
The
Economy
The
US stats were quite negative last week with one positive, five neutral and two
downbeat primary indicators that included three neutral inflation numbers. Overseas,
the data was positive including two plus and two neutral inflation readings.
We
still aren’t seeing any economic effects of the Iran war and the turmoil in the
private credit market in the data but it takes time for their inflationary impact
to work its way into the system.
With
respect to the dramatic rise in oil prices, it has been five weeks since the
war began and even assuming a positive outcome to Iran negotiations, we have a couple
more to go. Frankly, I don’t’ see how we escape the fallout from the massive
destruction of the Mideast oil production infrastructure. And while we are
seeing it real time at the pump, higher oil prices have yet to work their way
into the macroeconomic numbers. Clearly, it will have some effect, but it is
way beyond my level of expertise to forecast its magnitude.
The
private credit problem just keeps getting worse. However, several new studies pointed
out that (1) while magnitude of the ultimate damage is still an unknown, we do
know that private credit has produced no ancillary derivatives
securities/markets and (2) during the great financial crisis, derivatives risk
was sixfold greater than that of the underlying securities. So whatever the
risk today, it is considerably less than it was during that episode. Which
eases my concern with regard to the viability of our financial system.
Private credit fears creating attractive
values.
FINANCIALS:
Private Credit Fears Creating Attractive Values
Summary: The private credit stress is real and localized, concentrated
in direct-lending vehicles with genuine structural issues, including liquidity
mismatches and mark-to-model valuations. But the reflexive de-rating of the
entire Financials sector isn’t warranted; it unduly conflates the problem in
the shadow banking system to a problem for the health of regulated banks,
insurers, and diversified lenders—none of which are seriously exposed to the
private credit stress.
Counterpoint.
(3)
Sick Behavior From Financial Psychopaths
Summary: Wall Street spends years constructing a massive, opaque,
leveraged lending machine and sells it as safe, stable income. It pulls in
institutions, then pensions, then retail investors. always expanding the circle
of exposure. Stress builds quietly, then not-so-quietly. Defaults tick up.
Liquidity tightens. Investors panic. Douchebags in bowties warn
about it after it is too late. Regulators step in…not to dismantle the
system that created the risk, but to understand how big the rescue might need
to be. And at the exact same moment, the financial industry engineers new ways
to bet against the collapse it set in motion.
A
tidal wave of ‘oh shit’ moments.
(3)
A Tidal Wave Of Useless "Oh Shit" Moments
Summary: His broader message is not about predicting a crash. It’s
about recognizing patterns. Investment manias don’t require fraud or
catastrophe, they simply require too much optimism and too little skepticism.
And hey, anybody have any ideas where the hell this unlimited spigot of
optimism coming from anyways?
So
what do we know?
(1)
we know how the economy generally responses to war [Vietnam, Iraq, Afghanistan,
Ukraine] and despite some initial hiccups, all was well. Although this time, the impact on the oil
market will have some lasting effect [inflation],
(2)
we now have a solid reason to believe that risks associated with poor lending
practices in the private credit market will likely not lead to the kind of
financial devastation experienced during the great financial crisis and finally
(3)
we know that earnings estimates just keep going up [I review the financials of
a portion our investment universe weekly and I am struck by how earnings
forecasts from the Street keep rising despite the potential inflationary
fallout from rising oil prices].
http://scottgrannis.blogspot.com/2026/04/corporate-profits-are-very-healthy.html
So,
as you might guess, I am feeling a little more optimistic about the economy. I
am not reinstating my ‘muddle through’ scenario, though the odds of it
materializing are going up. On the other hand, as you know, I have reaffirmed
my ‘inflation is as good as its going to get’ forecast. Which means my focus is
starting to shift from worries about recession to those of stagflation.
https://bonddad.blogspot.com/2026/04/as-expected-march-consumer-inflation.html
US
International
Other
Update on business cycle indicators.
https://econbrowser.com/archives/2026/04/business-cycle-indicators-final-gdp-gdo-personal-income
Consumer sentiment plunges to record low.
Consumer spending is under strain.
https://www.nytimes.com/2026/04/10/business/economy/consumer-spending-economy.html?smid=url-share
Iran
Complete rundown of weekend developments.
Iran
war leaves permanent scar.
https://giftarticle.ft.com/giftarticle/actions/redeem/ae781cd6-7194-4879-8075-0f2b73ca1f28
Monetary
Policy
Europe
braces for a spike in inflation.
https://www.nytimes.com/2026/04/10/business/europe-inflation-iran-war.html?smid=url-share
Fiscal Policy
The $39 trillion policy that needs changing.
An in depth look at the national debt.
Inflation
Inflation has been above the Fed’s target
for five straight years.
https://mishtalk.com/economics/inflation-has-been-above-the-feds-target-for-5-straight-years/
Investing
Defense over offense.
https://talkmarkets.com/article/oil-shock-will-the-fed-intervene---part-ii-1775826610
The business excitement ratio.
https://behindthebalancesheet.substack.com/p/the-investment-excitement-ratio-ee5
Get out now.
The latest from Morgan Stanley.
Summary: The bottom line is that markets are doing
what they typically do — discounting the future ahead of the headlines. We
think much of the adjustment for geopolitical risk, private credit concerns,
and AI disruption has already taken place. What remains is largely
about rates and policy, which we believe will be resolved as the transition in
Fed leadership is completed.
As always, the market trades in advance of the
headlines. Investors should do the same.
What
I am reading today
Lunar eclipse from Artemis II.
https://politicalcalculations.blogspot.com/2026/04/lunar-eclipse-from-artemis-ii.html
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