The Morning Call
4/27/26
The
Market
Technical
There is just no quit in this Market. After
treading water for a week or so, the S&P lunged ahead on Friday---as usual
on the back of ‘peace talk’ news. Let’s hope the all goes well; but given the
recent trend in events, there is room for doubt. That said, investors could
apparently care less. The technicals are all ‘full steam ahead’ with the
S&P (1) making a new all-time high, (2) above all three DMAs and (3) in
uptrends across all timeframes. The technical question in my mind is how long can
this sprint higher last without a correction?---coupled with the more fundamental
question of the economic impact (growth and inflation) of the war (destruction
of the Middle East oil infrastructure) which is as yet unanswered.
As you know, I approached this upside move
cautiously---which couldn’t have been more wrong. Nonetheless, I am loath to
chase this upswing, especially with (now) three gap up opens sitting below. The
only good news in this trading error is that a number of stocks on my Buy List
have remained within buying parameters. So with any retreat, I can make a
delayed entry.
Hedge funds brace
for a reversal.
https://www.zerohedge.com/markets/hedge-funds-brace-reversal-dump-tech-stocks-fastest-pace-2-years
Summary:
While both the S&P and Nasdaq rose last week, it was anything but a
full-throttled affair. The lack of color on Iran negotiations - which have
once again
collapsed... but only after the market closed of course - kept risk
appetite at bay. As a result, Friday's record close happened with the
second worst breadth for an all-time high on record: 324 stocks closed
lower for a -148 net breadth reading (only October 2025 was worse, with 80% of
the S&P down on a record day). Under the surface, fears that the market had
topped out were evident everywhere: according to Goldman's share sales trading
desk, flows were reflective of asset managers re-risking in pockets of tech,
while Hedge Fund flows were quite bearish.
TLT was down
slightly on the week but remains above the lower boundary of its very short
term trading range. However, it remains 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 failed at its
50 DMA, is now challenging its 100 DMA and is still in a very short term
downtrend marked by the top and now two lower highs. The good news is that (1) it
remains in uptrends across all time frames and (2) still has one gap down open
overhead that needs to be filled. I will likely rebuild my GDX position when it
breaks through that very short term downtrend.
The dollar moved back to the upside last week, challenging its
DMAs---all of which are now resistance. In addition, it has a large gap down
open overhead that needs to be filled. So while I can see the dollar maintaining
some short term upward momentum, I continue to believe that the macroeconomic
backdrop of the US economy (slow growth and rising inflation) suggests a low to
lower dollar.
Friday in the
charts.
Summary:
Markets closed at all-time highs off the back of a fresh round of hopes the US
and Iran will be back to the negotiating table - driven by the latest barrage
of "promising" headlines from the US, offset by downbeat replies by
Iran (see below), although the market clearly focused on the former and not the
latter... Still, the most notable move today is the continue meltup in
semiconductors which are now up a record 18 days, and the most overbought they
have ever been. The drop in oil also helped Treasury yields fall,
especially after the DOJ announced it would close its criminal probe on Powell
potentially cleared a path to Kevin Warsh’s confirmation as the next Fed
leader, with traders boosting bets on interest-rate cuts. Yet the most
remarkable chart of the day is the same one we have shown on several occasions,
namely the staggering disconnect between stocks on one hand, and oil and yields
on the other. It now appears that the S&P is about 600 points rich to where
other assets suggest it should be.
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
Monday morning
setup: Risk sentiment improved overnight on another Axios report
that Iran has given the US a new proposal to reopen the Strait of
Hormuz with more detailed nuclear talks expected later. Oil pares early
gains, and US equity futures jumped although they have also pared gains since
and are trading flat as traders await a huge week of earnings (44%
of the S&P by mkt cap is set to report) and central bank decisions
(Fed, BOJ, ECB, BOE and BOC all expected to keep rates on hold). As of
8:00am ET, S&P 500 futures are flat and Nasdaq 100 contracts gain 0.2%
after Friday's records for both indexes even though leadership is narrow, and
the S&P equal weight index closed negative on the week; premarket
gains by chip stocks like Nvidia, Qualcomm, Intel and Micron suggest the
semiconductor ETF (SOX) is set for a record 19th day of gains. Mag7s
are mixed, semis are bid, discretionary outperforms staples, cyclicals over
defensives, and AI theme is bid across multiple sectors. Looming Big Tech
results (22% of S&P 500 market cap across just four companies reports
after the close on Wednesday, when Alphabet, Microsoft, Amazon, and Meta
release their Q1 results with Apple following on Thursday)
will test whether April’s rally is sustainable, with signs of caution
under the surface of the gains. Bond yields are +1-2bps as the yield curve
steepens; DXY is lower. Commodities are bid led by the Energy complex, with
most products up at least 2%. Brent crude rose 1.1% to about $106.50 a barrel
after Trump canceled a trip by top envoys to mediators in Pakistan over the
weekend. Base metals are leading Precious with Ags continuing its march
higher. Today’s macro data calendar is light ahead of a heavy central bank
schedule where major CBs are expected to hold ahead of the market pricing
changes in June. Warsh is set to be confirmed without further delays while
Powell’s status remains unclear.
Fundamental
Headlines
The
Economy
The
US stats tilted to the positive side last week with one positive primary
indicator. Overseas, the data was very disappointing which included two neutral
and two negative inflation readings.
We
still aren’t seeing any economic effects of the Iran war and the turmoil in the
private credit market in the US numbers though perhaps last week’s global data
was the first sign. But one week’s stats is not a trend; so, it is way too
early to make that judgment. That said, some of the leading energy experts are
raising major concerns about the economic growth and inflationary impacts of a constrained
oil supply on the global economy. Their prognosis is not good for either even
if the war were to end today.
On
the other hand, there is a lot of weapons restocking that needs to be done.
https://www.zerohedge.com/military/race-refill-us-weapons-stockpiles-will-supercharge-war-economy
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.
While
this all leaves me with heightened concern about both growth and inflation/stagflation,
the stock market is anything but worried. I am not sure if (1) this is a buy-the rumor-sell-the-news situation,
(2) investors correctly believe that earnings growth will continue at its
current pace irrespective of the damage being done by the destruction of the Middle
East oil infrastructure and I am wrong to be worried or (3) investors incorrectly
believe earnings growth will continue at its current pace irrespective of the
damage being done by the destruction of the Middle East oil infrastructure I am
right to be worried.
Color
me clueless. But until the magnitude of the war’s economic impact on the US economy
becomes clearer, my choice is to stay on the sidelines even if I am proven wrong
to be worried.
More talks, but nothing has changed.
Summary: Putting it all together, Goldman's Delta One head warns
that markets are high and so is energy, and more importantly, this
isn’t a clean shock you can reverse quickly. Logistics matter -
tankers out of position, refining constraints, and tight product markets mean
the impact lingers even if headlines improve. It is interesting to see survey
data like the Gallup economic confidence index is extremely weak, which
is a notable divergence between markets and households. Trading wise, it
still feels like the next headline dominates (just look at stocks today). Early
this morning, Privorotsky predicted correctly that "if
you had to guess, the most likely near-term catalyst is “talks back on” over
the weekend…which probably means higher first and then reassess." But
zooming out, Privo warns that there’s less technical impulse to buy
here, and the asymmetry is starting to tilt the other way...so I have been and
remain cautious at these levels.
US
The April consumer
sentiment index came in at 49.8 versus estimates of 47.6.
https://econbrowser.com/archives/2026/04/updated-april-michigan-survey-results
International
The February
Japanese leading economic indicators were reported at 116.3, in line.
The
May German consumer confidence index was -33.3 versus projections of -29.5.
Other
Interest rates and the long term leading
indicators.
https://bonddad.blogspot.com/2026/04/updating-long-leading-indicators_24.html
Iran
Overnight news.
Monetary
Policy
What to watch as Warsh assumes the Fed chair.
https://www.carsongroup.com/insights/blog/kevin-warsh-as-the-next-fed-chair/
Fiscal
Policy
Washington’s self-inflicted farm crisis
https://www.cato.org/blog/washingtons-self-inflicted-farm-crisis
America’s debt problem is a healthcare
problem.
https://reason.com/2026/04/23/americas-debt-problem-is-a-health-care-problem/
Investing
News on Stocks in Our Portfolios
What
I am reading today
Notes for self-education.
https://jillianhess.substack.com/p/richard-feynmans-notes-for-self-education?ref=thebrowser.com
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