The Morning Call
1/30/23
The
Market
Technical
The S&P had a
great week (1) successfully challenging its 200 DMA and resetting it to support
and (2) initiating a challenge of the upper boundary of its short term
downtrend; if it remains there through the close today, it is reset to a
trading range. If that occurs, the next resistance exists at is the 23.6% Fibonacci
retracement level (~4200). So, the
technical picture is getting stronger and appears to be reflecting better
economic numbers (see below).
The long bond was up
ever so slightly on the week---but it couldn’t mount a challenge of its 200 DMA
and it made a lower high. Not very
encouraging to the bond folks and not reflective of a ‘Fed pivot/Fed lucks out’
scenario. As you know, I almost always
favor the bond market’s judgment over the stock market’s. But it is too soon to assume the upbeat economic/Fed
narrative is overdone. Nonetheless, the
long bond needs to trade better for the stock market’s Goldilocks storyline to
hold.
Pay
attention to the bond market.
https://allstarcharts.com/will-rates-hold/
GLD continued its romp
higher. Likely, it is a reflection of
the renewed uncertainty over recession, inflation and the debt ceiling.
The dollar couldn’t
hold the lower boundary of its short-term uptrend. The good news, if there is any, is that it didn’t
blow through that support and pick up downside momentum. One would think that if investors were
convinced of the ‘Fed lucks out’ scenario, UUP would be performing better. So, like bonds and gold, the dollar’s pin
action is not reflective of the stock market’s enthusiasm.
Friday in the
charts.
Investors’
dilemma.
https://www.zerohedge.com/markets/somethings-gotta-give
Buyback blackout
ends with a bang.
Fundamental
Headlines
The
Economy
Last Week Review
Last
week the stats in the US were overwhelmingly positive (three upbeat primary
indicators, one neutral and two negative), while overseas they were just slightly
on the plus side. The US numbers continued to show an economy not quite as weak
as had been feared and inflation subsiding.
http://scottgrannis.blogspot.com/2023/01/gdp-up-inflation-down.html
This
data keeps alive the hope for the ‘Fed lucked out’ scenario. As to whether or not the Fed buys that
narrative, we will get some feedback from the FOMC which meets this week.
As
you know, of late, Fed members have sounded quite hawkish. And I hope that they stick with their guns---because
as I have noted previously, slowing inflation is not the same thing as bringing
it back to two percent.
Unfortunately,
whatever the rhetoric, I will have a tough time believing it, simply because of
the Fed’s past inconsistencies and its unwillingness to stay tough in the face
of difficult economic/Market headlines.
Bottom
line: there still is always a chance that the Fed could luck out, at least in
the short term. But…. Regrettably, the economy is too deep in the
doo doo for the ‘lucked out’ scenario to prevail long term. Years of fiscal profligacy have left us with
a debt to GDP ratio far in excess of the boundary marked by Rogoff and Reinhart
as the level at which the servicing of too much debt negatively impacts the
growth rate of the economy. And years of
irresponsible monetary expansion have led to the misallocation of resources and
the mispricing of risk.
Correcting those self-inflicted wounds won’t be easy. It will take years
of fiscal and monetary restraint to do so.
And that would mean less fiscal stimulus and interest rates staying
higher for longer than many now expect.
So, I believe that
the Fed will stay tight as long as it is convenient to do so. If we/the Fed get ‘lucky’, then the Markets will
hopefully stay reasonably calm as the Fed pursues its QT. If not, then expect turmoil and the Fed ‘chickens
out’. Short term, whether the Fed
‘chickens out’ or ‘lucks out’, stocks
will likely enjoy a push higher.
And
speaking of ‘lucking out’ (must read).
And
another ‘get lucky’ article.
Longer
term, I am not so positive---meaning continuing irresponsible fiscal and monetary
policies, i.e. slower secular growth and higher secular inflation.
Headlines
The
Economy
US
International
Q4 German GDP fell 0.2% versus estimates of
flat.
The January EU economic
sentiment index as 99.9 versus predictions of 97.0; the industrial sentiment
index was 1.3 versus -0.6; the services sentiment index was 10.7 versus 7.9;
consumer confidence was -20.9, in line.
Other
A warning from Jeffrey Snider.
More from Ed Yardini on Q4 GDP and inflation numbers.
https://www.yardeniquicktakes.com/q4-gdp-report-was-weak/
The current data support whatever forecast
you want to make.
https://www.capitalspectator.com/is-us-recession-risk-high-low-or-both/
Lumber prices have stopped going down.
The rise in car loan defaults.
The Fed
The Fed gets its wish.
https://www.zerohedge.com/markets/fed-gets-its-wish-inflation-below-funds-rate-final-sales-too
Geopolitics
Rand study breaks with US hawks.
Bottom
line
The latest from BofA.
https://www.zerohedge.com/markets/hartnett-another-3-5-will-feel-bathing-lava-if-youre-bear
Beware of New Metrics.
https://onveston.substack.com/p/the-easiest-way-to-spot-a-market
What
I am reading today
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