The Morning Call
6/26/23
The
Market
Technical
The S&P had a
punk week, reflecting technicians’ warning of extremes in sentiment and
positioning. So, it wasn’t that
surprising. And if you believe Goldman
(see below), the decline isn’t over.
That said, there is plenty of room for backing and filing without doing
any damage to the technical position of the S&P---the 100 DMA is at ~4117,
the lower boundary of its short-term uptrend is at ~4031 and the 200 DMA is at
~3992. The task now is to sit back and
see where the index can find support. If
it is low enough and the economic news is confirming recession, then maybe it
is time to nibble.
Goldman desk warns
that everyone is long now.
Non-dealers loaded
up on S&P futures.
https://www.zerohedge.com/the-market-ear/they-didnt-buy-lows
Sentiment index increases.
Sentiment
Index Increases As Stock Prices Rise - RIA (realinvestmentadvice.com)
The latest from
BofA.
As you can see,
the long bond is attempting the behave better.
It has (1) bounced off the lower boundary of its intermediate term
downtrend, (2) pushed upward out of a small pennant formation and (3) is
starting a challenge of both DMAs. You
may recall that I bought a small position in TLT last week prompted by my
renewed confidence in the likelihood of a recession. If it can confirm the resetting of its DMAs, I
will likely add to that position.
GLD has not had a
good month (1) two weeks ago it voided a very short t term uptrend and bounced
off its all-time high for the third time, (2) this week, it reset its 100 DMA
to resistance. That is not to shout,
‘look out below’. After all, it was its all-time
high; plus, it remains in intermediate and lone term uptrends; and recessions
tend to be good for the price of gold. Nevertheless, support is a long way
away; so, there is lots of room for more downside before any real technical
damage is done.
The
dollar had a good week. It did manage to
bounce off its 100 DMA (now support); but remains trapped between its 100 and
200 DMA and within a short-term trading range.
So, while this chart is not really giving us much information about the
likely course of equities and bonds, it does help to explain the pin action in
gold.
Friday in the
charts.
Fundamental
Headlines
The
Economy
Last Week Review
Another
week of few economic stats; and that even includes all the flash PMI’s. In the US the data was balanced though the
primary indicators were slightly positive (one plus, one neutral). Overseas, the numbers were overwhelmingly downbeat.
Europe
is almost certainly sliding into recession.
The question is (1) how far behind is the US? Or (2) can we scoot by
with a mild or no recession at all? I think that the latter seems less probable.
As I opined last week, my confidence that the US will experience a recession
has begun to rise again. This week’s flash PMIs support that notion.
The
weekly leading indicator raises questions.
Waiting
for the recession.
https://www.wsj.com/articles/wheres-the-recession-we-were-promised-cd68a992?mod=hp_lead_pos5
The
other issue investors must deal with is, of course, inflation. And perhaps more
importantly, how the Fed perceives this problem and even more important, just
how firm is its determination to achieve its 2% target. We got more direction
this week from Powell who testified before both houses in congress---in which
he reiterated that inflation remains a major concern and therefore, more rate
hikes were likely on the table.
That
said, as you know, I am quite skeptical of the Fed’s forecasting expertise and
have even less confidence in its courage to maintain a restrictive monetary
policy in the face of even the slightest hint of economic/Market turmoil.
Jeffrey
Snider echoes my skepticism.
https://www.realclearmarkets.com/articles/2023/06/23/whats_monetary_about_interest_rates_942593.html
So,
I have no great expectations that the Fed will stick to its guns in pushing
inflation back to 2%. Indeed, I believe that the only way inflation gets back
to 2% is on the back of a painful recession. To be clear, I have no idea if we will have a
painful recession; but as you might guess from my recent comments, my
confidence that in the short term there will be one, however mild, is rising.
Longer
term, irrespective of how low inflation goes in the short term, irrespective of
whether or not we have a recession and if so, how deep it will be, we are still
faced with an economy growing at well below its historic secular rate and a
base rate of inflation above 2%.
Regrettably, 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---which
unfortunately is not apt to happen.
The
Economy
US
International
April Japanese
leading economic indicators came in at 96.8 versus forecasts of 97.6.
The June German business
climate index was 88.5 versus predictions of 90.7; the June current conditions
index was 93.7 versus 93.5.
Other
The Fed
What if higher rates increase inflation?
Recession
European balance sheets are deteriorating.
Bottom line
US
equity funds see the biggest outflow in 12 weeks.
https://www.reuters.com/markets/us/us-equity-funds-see-biggest-outflow-12-weeks-2023-06-23/
Some positive thoughts on
REITs.
https://savantwealth.com/savant-views-news/article/the-tradeoff-time-for-a-commercial-break/
News on Stocks in Our Portfolios
What
I am reading today
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