The Morning Call
2/21/23
The
Market
Technical
The S&P had
another lousy week. The good news is
that it remains in a very short-term uptrend and made a gap down open of Friday
which needs to be filled. The bad news
is that it keeps making lower highs. I
think that it is too soon to give up on this rally but the signs are increasing
that stocks prices are about to roll over.
Still stuck.
https://www.zerohedge.com/the-market-ear/still-stuck
Like the S&P,
the long bond had a very disappointing week.
It successfully voided a very short term uptrend and is now challenging its
100 DMA---if that is successful, then there is no visible downside support
until the lower boundary of its long term treading range which is so much lower
that it doesn’t even show on this chart.
Not a good sign for bonds or stocks.
Treasury traders
know that the Fed missed the boat.
https://www.zerohedge.com/markets/treasury-traders-know-fed-has-missed-boat-bigger-move
GLD continued its
downward momentum which, as I have noted previously, is not surprising given the
rise in both interest rates and the dollar.
Still, it remains in both intermediate and long term uptrends and above
both DMA’s. Plus, it has that enormous gap
down open two weeks ago. So, it is
positioned to rebound if either economic or geopolitical landscape were to turn
sour.
However,
https://www.zerohedge.com/the-market-ear/gold-they-missed-rates-gap
As noted above,
the dollar continued its rally off the lower boundary of its short-term uptrend
which is reflecting the changing investor attitude about the Fed, i.e., that
higher for longer is becoming the accepted scenario.
Friday in the
charts.
https://www.zerohedge.com/markets/crypto-rips-bonds-stocks-dip-hawkish-sentiment-soars
The
magazine cover indicator.
https://www.riskhedge.com/outplacement/a-perfect-stock-market-indicator1/rcm
Inflation and the mining and metals ETF.
https://allstarcharts.com/these-stocks-like-it-hot/
The technical versus the fundamentals.
Goldman trader turns negative.
https://www.zerohedge.com/markets/joy-missing-out-one-most-accurate-bulls-just-turned-bearish
Retail investors pouring $1.5 billion a day
into Market.
Fundamental
Headlines
The
Economy
Last Week Review
Last
week was another relative quiet one for data. In the US, the indicators were balanced---with
one positive, two neutral and two negative primary indicators. Importantly, the one positive item was retail
sales which is not what the Fed (or the Market) wants to see right now; and the
indicators were neutral (CPI) and negative (PPI)---also not the ideal outcome.
Overseas,
the indicators were slightly tilted to the negative side.
I
noted in last week’s Monday Morning Chartology that the Market was ‘starting
to rethink its belief that the Fed isn’t as hawkish as it says that it is’. That worry continued to grow through the
week. The result of which was the
repricing of the yield curve to reflect a ‘tighter for longer’ scenario. As I also noted last week ‘If
only’.
So
while investors seem to be shifting away from the Fed ‘lucks out’ storyline, I have not altered my view that the Fed will ‘chicken
out’. Indeed, I was joined last week by
none other than Mohamed El Erian and Ken Rogoff (of Reinhard and Rogoff fame)
who are now speculating that that the Fed will simply move its inflation
goalpost from 2% to 3-4% and declare
victory.
Bottom
line: my opinion hasn’t change…. 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.
Unfortunately, the
alternative scenario is the Fed ‘chickens out/moves the goalpost’---meaning
continuing irresponsible fiscal and monetary policies, i.e., slower secular growth,
higher secular inflation and lower multiples.
Update from my favorite
optimist.
http://scottgrannis.blogspot.com/2023/02/inflation-is-still-under-control-and.html
Counterpoint.
https://www.zerohedge.com/markets/not-your-typical-recession-bofas-subramanian
Headlines
The
Economy
US
International
December EU
construction output fell 1.3% versus estimates of +2.1%; February consumer confidence index was
-19, in line; February economic sentiment index was 29.7 versus 22.3.
The February
Japanese flash manufacturing PMI was 47.4 versus consensus of 50.4; the February
flash services PMI was 53.6 versus 52.8; the February flash composite PMI was
50.7 versus 51.7; the February German flash manufacturing PMI was 46.5 versus
48.0; the February flash service PMI was 51.3 versus 51.0; the February flash
composite PMI was 51.1 versus 50.4; the February EU flash manufacturing PMI was
48.5 versus 49.3; the February flash services PMI was 53.0 versus 51.0; the
February flash composite was 52.3 versus 50.6; the February UK flash
manufacturing PMI was 49.2 versus 47.5; the February flash services PMI was
53.3 versus 49.2; the February flash composite PMI was 53.0 versus 49.0.
February
German economic sentiment index was 28.1 versus forecasts of 22.0.
Other
Update on big four economic indicators.
Fiscal Policy
Cuts to social security
and Medicare are coming regardless.
Geopolitical
Putin suspends START nuclear
treaty.
Bottom
Line
Pay attention to the trend in
margins.
https://www.ft.com/content/3c510894-b96a-477c-8843-667325fa68cb
Sticky margins and entrenched inflation
remain a problem for risk assets.
Thoughts on the Market from several
strategists.
The latest from BofA.
News on Stocks in Our
Portfolios
Home
Depot press release (NYSE:HD): Q4 GAAP EPS of $3.30 beats by $0.02.
Revenue
of $35.83B (+0.3% Y/Y) misses by $170M.
Home
Depot (NYSE:HD) declares $2.09/share quarterly dividend, 10% increase from prior
dividend of $1.90.
What
I am reading today
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