The Morning Call
6/15/26
The
Market
Technical
The S&P eked
out a small gain in an otherwise roller coaster week. Unless you are living
under a rock, you know that you have Trump’s settlement deal language to thank
for that. On the plus side, the index (1) bounced off its 50 DMA, remaining
above all three DMAs and (2) is in uptrends across all timeframes. Further, the
(1) economy continues to perform, (2) if 39 is a charm, the latest Trump claim
that a deal with Iran is done could be happening [though it is still unclear
exactly what $40 billion and a dozen US kids’ lives have bought us] and (3)
there are three huge IPO’s coming [one down, two to go]---and I can’t believe that
the Wall Street bankers are going to allow the Market to go down ahead of these
offerings.
I will add an
admonition to pay attention to the next new high---which is to say, if the average
backtracks soon and heads down again, then one needs to stay on the sideline. I
raise this word of caution because a great percentage of the technical analysis
community has been howling about the weak Market internals. That is not to say
that they are correct; it is to say, be careful; we don’t know yet that the
worst is over.
Follow through.
This is what a broken Market looks like.
https://www.zerohedge.com/the-market-ear/what-broken-market-looks
Summary:
Markets are going nowhere fast, but the journey has rarely been this violent.
Semiconductors, Korea, leveraged ETFs and tech volatility are all flashing the
same message: beneath the surface, market structure is becoming increasingly
unstable. We are not calling for a crash. We are simply pointing out that
volatility is behaving in ways usually associated with much later stages of a
cycle. Volatility is the truth. Right now, it is screaming for attention. volatility
changes behavior. Investors stop focusing on returns and start focusing on
survival. Leverage amplifies every move, positioning becomes unstable, and
small shocks create outsized reactions. High volatility is not just a symptom.
It becomes the regime. The key point is that
volatility is no longer just a function of positioning or market structure. It
is increasingly a function of the underlying theme itself. The bigger the AI
buildout becomes, the bigger the uncertainty around future earnings, capital
allocation and competitive dynamics become The market is not simply becoming
more volatile. The market's most important narrative is becoming more volatile.
Markets stay risk-on.
https://www.capitalspectator.com/markets-stay-risk%e2%80%91on-despite-alarming-headlines/
Another reason for
some caution is that the bond boys weren’t nearly as impressed with the likelihood
of an Iran settlement as the stock jockeys. True, TLT was up on the week---but
look at this chart and tell me that you see something positive. The only real
plus that I see is that it managed to hold above the support level set last
January (and bounced off of six prior times). Let’s see if it can hold. Meanwhile,
it is below all DMAs (though it is testing its 50 DMA) and in downtrends across
all major timeframes. Plus with mediocre economic growth and a high level of
inflation---the most likely result of the destruction wrought on the oil
infrastructure and a spendthrift government, I am hard pressed to think that
bond prices are going to improve markedly.
Gold had another
rotten week, remaining in a very short term downtrend marked by the January 29th
top with four lower highs. And it has successfully challenged its 200 DMA (now
resistance)---putting it below all three DMAs. The next support level is the
lower boundary of its short term uptrend. If we are seeing a reversal in the growth
of inflation (see below), gold’s poor pin action makes sense.
The dollar was strong again last
week and appears to be trying to break out of a trading range. It just needs
another strong week to do so. I am not convinced that the long term US fundamentals
support a move higher but since we are the cleanest shirt in a dirty laundry (rest
of the world) that could be the propellent.
Friday in the charts.
https://www.zerohedge.com/markets/deal-hopes-inflation-nopes-lift-stocks-bonds-week-musk-leads-4-commas-club
Summary: Supportive macro data
(growth >> inflation) and mixed micro (ORCL/ADBE AI
disappointing, CHWY consumer resilience) were overwhelmed by the 38th 'deal
is imminent' headline, lowering oil prices, bond yields (and rate-hike
odds), and the dollar; lifting stocks and crypto. In the triplet of
oil-bonds-stocks, equity markets 'underperformed' on the week...
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
What Elliott Wave
Theory says about oil.
Monday morning
setup: Global markets soared in a risk-on rally following the announcement of a
US-Iran deal Sunday night. Stocks and bonds rallied while oil tumbled to a
three-month low after the US and Iran said they have reached an interim
agreement to reopen the Strait of Hormuz and halt the war. This will provide a
60-day window for negotiation. As of 8:00am ET, Nasdaq 100 futures
advanced 2.1%, while those for the S&P 500 rose 1.3%. In the pre-market,
Mag 7 are all higher led by NVDA (+2.1%), META (+2.0%) and MSFT (+1.7%). European stocks climbed
0.7% to shatter a pre-war record high while Asian stocks were similarly
buoyant. Bond yields are 2-5bp lower led by the belly of the curve and the 10Y
trading around 4.4%. The USD is lower. Brent fell to around $83 a barrel and
WTI slid below $80 for the first time since the start of the war. Gold and
Bitcoin gained strongly, while the dollar lost ground against all
major currencies. European bonds outperformed global
peers. Metals are higher led by gold (2.8%) and silver (+3.9%). US
economic data calendar includes June Empire manufacturing (8:30am), May
industrial production (9:15am) and June NAHB housing market index (10am)
Fundamental
Headlines
The
Economy
The
US stats last week were weighed to the positive side, primary indicators were
two plus, one neutral, one minus and inflation data was one plus, one neutral
and one minus, Overseas, the data was balanced with two positive, one neutral
and one negative price measures.
For
the past several weeks, I have been making the observation that despite the
ever louder narrative of rising inflation, that week’s numbers didn’t bear it
out. Last week was no different; and it is prompting me to shift my narrative:
while I don’t think that we will see a significant drop in the inflation rate perhaps
we are at the point where it ceases getting any worse. So, I am shading my
forecast recognizing that while inflation remains a problem, it is probably as
bad as its going to get.
That
we will get back below a two percent annual inflation rate seems unlikely to me
given a spend thrift ruling class, a clueless Fed and an oil supply problem
that isn’t going to be fixed anytime soon even if peace in the Middle East
breaks out tomorrow. Still the good news is conditions aren’t getting worse.
Counterpoint.
https://www.washingtonpost.com/opinions/2026/06/10/americans-do-not-love-these-inflation-numbers/
And
another.
https://talkmarkets.com/article/the-data-just-killed-the-soft-landing-are-you-positioned-1781272296
Meanwhile,
the economic growth in the US remains strong enough to support my ‘muddle
through’ forecast at the very least. A new Fed chief adds some uncertainty. While
it is unclear to me how dovish/hawkish Warsh will be, he was appointed by
Trump, who is a loud, an aggressive proponent of an easy monetary policy. True,
Warsh is a single vote and given the recent hawkish comments coming out of the
several FOMC members, he would likely have a tough time persuading others to
lighten up. But he would also likely keep Fed policy from being too hawkish.
Bottom
line: the economy is performing well and will likely continue to do so at least
in the short term, given (1) US energy independence, (2) the level of AI spend
and (3) the enormous fiscal stimulus that presently seems endless. On the other
hand, I now think that inflation has probably topped out.
US
The
June NY Fed manufacturing index came in at 5.7 versus forecasts of 14.
International
The
April EU trade balance was -E1.0 billion versus projections of +E7.8 billion;
April industrial production was up 0.1% versus +0.3%.
May
German CPI fell 0.6% versus estimates of +0.8%.
Other
Goldman lowers oil price forecast (clearly
assumes the Iran is over).
Summary:
Nudging down 2027 forecast. We lower our 2027 average Brent forecast by
$5 to $80 on higher supply and lower demand. We lift 2027 supply in the UAE
(given its OPEC exit) and the Americas (i.e., US, Brazil, Guyana, and
Venezuela) on firmer realized and projected supply in our Top Projects dataset.
While demand is likely to largely bounce back after reopening, we assume that
just over 10% of the demand weakness persists as China's shift to alternatives
(e.g., EVs) accelerates. Struyven estimates a 5 million- to 6
million-barrel-a-day deficit in the second quarter, well below the 14 million-
to 15 million-barrel-a-day hit to Middle East energy flows. He said the impact
has been cushioned by nearly 5 million barrels a day of demand losses and more
than 4 million barrels a day of pre-war oversupply. "We now assume that
oil exports from Gulf producers normalize by late August (vs. by late June
prior), which may be achieved with a rise in Hormuz flows to 70% of pre-war
levels given current redirections," the commodity expert said.
Iran
Overnight news.
Over the
weekend, the US and Iran announced a 60-day peace framework, marking a
significant de-escalation of the conflict. Iran will reopen the Strait of
Hormuz in exchange for the US lifting its naval blockade, waiving sanctions on
Iranian oil and releasing part of Iran's frozen assets. Regarding uranium, Iran
would be allowed to dilute enriched uranium on site, while the 60-day window
allows for further negotiations on its enriched uranium programme. The
deal also covers Lebanon, with Pakistan's PM posting on X that the pact called
for the immediate and permanent termination of military operations on all
fronts, including Lebanon.
A source told Fars
that the text of the MoU underwent changes that have definitely and explicitly
emphasised the issue of exercising Iranian-Oman sovereignty over the Strait of
Hormuz. It is now written that the future of the administration of maritime
services in the Strait of Hormuz will be "determined" by Iran and
Oman. Furthermore, the change now writes that Iran will only accept ships
for 60 days of free passage. That is, the US has
accepted the principle of receiving fees and has only taken a 60-day discount
from Iran. But after these 60 days, Iran intends to benefit from the financial
revenues generated by the traffic.
***If this is
correct, how is this a win for the good guys? The Strait was toll free before
the war. Now we are recognizing Iran’s right to control a major global economic
choke point? One of the key elements of post WWII political/economic world was
the US Navy guaranteeing free passage on the open seas. This opens the possibility
of other nations claiming control/sovereignty over waters outside the three
mile limit. Let’s hope that it is not correct.
Israeli Defence
Minister Katz said "we oppose the withdrawal of the IDF from Lebanon...
have made it clear to US President Trump". If Iran attacks Israel because
of events in Lebanon, "we will strike it with full force and make sure it
clearly understands the gap in capabilities."
Israel's Finance
Minister said that "the agreement is bad for the entire world. We will
have to continue the campaign in creative ways."
Israeli National
Security Minister Ben-Gvir said US President Trump's agreement does not bind us
in any way.
Monetary Policy
The oil shock is
not a trigger for a rate hike.
About trillionaires
and inequality.
(3)
An Open Letter To Elizabeth Warren About Trillionaires And Inequality
Tariffs
After a year of
tariffs, the trade deficit has barely budged.
https://www.cato.org/blog/after-year-high-tariffs-us-goods-trade-deficit-has-barely-budged
The
Financial System
Private credit
dividends look less secure.
Blackrock private
credit fund gates investors.
AI
The $1.8 trillion
off balance sheet time bomb.
https://www.zerohedge.com/markets/18-trillion-balance-sheet-time-bomb-heart-ai-supercycle
Summary:
We started this long article by highlighting the "big" $1.4 trillion
2027 capex projection by Goldman. As it turns out, that's just the tip of the
iceberg as headline capex figures materially understate the economic
commitment to the AI buildout. Only when you add ~$1tn of purchase
commitments, ~$822bn of not-yet-commenced leases, finance-lease effects, and
supplier debt collateralized by hyperscaler commitments, does one start to get
a sense of the full size of AI balance sheets, and how much is truly at stake
if the AI revolution fails to materlize in the form of record AI revenues to
cover the massive on and off-balance sheet commitments. The good news is
that, for now, the risks aren't an imminent solvency problem, but a set of
timing and disclosure mismatches - a deferred depreciation wall, capex running
ahead of monetization, leverage migrating into the supplier/private-credit
layer, and classification judgments that make true capital intensity hard to
compare across companies. For their part, hyperscalers have taken advantage of
the current moment of market euphoria to raise as much capital as they can,
aware that the window will eventually shut. The question is when sentiment
turns, and when all these funding conduits are shut, will there be enough
funding to sustain the AI revolution for the foreseeable future. Of course,
this question becomes moot if demand shifts, and instead of buying the latest
and greatest offering from Anthropic or OpenAI for a stratospheric number of
tokens, consumers and enterprises turn to dirt-cheap alternatives from
China which offer 90% of the performance of frontier models for a fraction of
the cost, then all bets are off.
Investing
The Market is giddy.
https://www.barrons.com/articles/panic-euphoria-index-stock-price-e00ffbbe?st=8fnW6D
Summary:
Citi’s Levkovich Index, a sentiment gauge, reached 0.93 last Friday, its
highest level since the post-Covid rally. The S&P 500 is up nearly 8% this
year, but a high sentiment index often precedes a 13% median decline. Despite
high market euphoria, Citi forecasts the S&P 500 to reach 8,100 by
year-end, driven by strong AI-led profit growth.
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