The Morning Call
7/31/23
The
Market
Technical
The S&P maintained
its upward bias with the ‘inflation in the rear-view mirror accompanied by a
soft landing’ scenario received some mild support from Powell and the FOMC. Last week’s economic data continued its see
saw pattern as good news followed the prior week’s bad news. So, at the moment, I don’t see any clear
compelling evidence for investors’ acceptance of the aforementioned Goldilocks
narrative. However, they seem determined
to be upbeat. Therefore,, I think we
have to assume that the S&P will at least test the upper boundary of its short-term
uptrend (~4650) and perhaps its all time high (~4818).
With the
“inflation in the rear-view mirror accompanied by a soft landing’ scenario
gaining credence, last week’s decline in bond prices doesn’t fit. But how many
times have the bond guys disagreed with the stock boys? I think that means that equity investors’
Goldilocks scenario is not universally accepted. I like that interpretation because it agrees
with mine---although it doesn’t mean that it is right. It does mean that ‘inflation in the rear-view
mirror accompanied by a soft landing’ is not yet a given.
GLD had another roller coaster ride last week though it did manage to eke out a small gain---keeping it above its 100 DMA and in harmony with its intermediate and long-term uptrends. It seems to be reflecting the same uncertainty as TLT.
The dollar continued its rally off the lower
boundary of its short-term trading range and is now challenging its 100 DMA. A
strong dollar is usually not a plus for stocks or gold. So, again, I chalk this up to uncertainty
among the players in the different markets.
Friday in the charts.
https://www.zerohedge.com/markets/stocks-close-highest-april-2022-yen-tumbles-boj-tweak-fizzles
The longs are
longer.
https://www.zerohedge.com/the-market-ear/long-longer
Fundamental
Headlines
The
Economy
Last Week Review
Last
week’s US stats were slightly downbeat with the primary indicators
overwhelmingly positive (four plus, one neutral, one negative). Overseas, the
data was copious and negative.
So,
the results affirmed both the Markets’ takeaway and the growing consensus among
leading economists that (1) inflation is in the rear-view mirror and (2) we
will get a ‘soft’ landing. But just as a reminder, the prior week’s numbers
were the exact opposite---meaning that, at least to me, it is not clear at all
whether inflation is in a secular decline or a recession will be avoided. Nonetheless, the Markets’/economists do.
Here
is a perfect example:
https://www.morningstar.com/markets/feds-powell-talks-tough-after-rate-hike-pause-seen-likely-here
Though
we are hearing caution from some.
https://www.nytimes.com/2023/07/27/business/economy/fed-economy-soft-landing.html
Its/their
underlying assumption seems to be that either (1) the Fed is not really serious
about hitting its 2% target and will settle for a 3% or so goal, or (2)
inflation will miraculously return to 2% on its own while the economy remains
healthy. Not surprisingly, in its
meeting last week the FOMC was weaseling its way toward a low inflation/no
recession forecast. I think that gives
the most weight to choice number (1) which clearly is not putting inflation in
the rear-view mirror. It is, in fact, aiding
and abetting another round of inflation as a too easy monetary policy and
irresponsible fiscal policies continue to plague our economy.
Unfortunately,
I believe that the Fed hasn’t ‘chickened out’ soon enough to avoid a
recession. Though I have no idea how
deep it will be. That means it will not
likely be the kind of recession that cleanses the economic system of years
(decades) of monetary/fiscal mismanagement and returns secular inflation to
~2%.
But
mine and other’s forecasts are all guesses.
https://www.themoneyillusion.com/long-and-variable-nonsense/
As an aside, I will note that the one scenario that would screw almost
all investors/forecasters/current elected officials would be for either the Fed
to stick to its guns, pushing the economy into a rough recession or the economy
falls into a severe recession of its own accord weighted down by years of
monetary/fiscal mismanagement. To be
clear, I don’t think that will happen, but I would pose it as the major
Market/economic risk.
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%.
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.
Why irresponsible
monetary and fiscal policies matter.
https://www.zerohedge.com/markets/deficits-debt-and-why-32-trillion-matters
The Economy
US
International
Q2 EU flash GDP grew 0.3% versus estimates of
+0.2%; Q2 CPI was -0.1% versus -0.2%.
June Japanese preliminary industrial
production was up 2.0% versus predictions of +2.4%; June retail sales fell 0.4%
versus +0.8%; June YoY housing starts were down 4.8% versus -0.2%; June YoY
construction orders were up 8.8% versus +2.0%; July consumer confidence was
37.1 versus 36.8.
June German retail sales declined 0.8% versus
consensus of +0.2%.
The July Chinese manufacturing PMI came in at
49.3 versus expectations of 49.2; the July nonmanufacturing PMI was 51.5 versus
52.9; the July composite PMI was 51.1 versus 52.0.
Other
Fiscal
Policy
More support for the thesis that
rising debt to GDP slows economic growth.
Geopolitics
No adult supervision in
Ukraine.
https://www.zerohedge.com/geopolitical/us-was-behind-both-crimean-bridge-attacks-seymour-hersh
Mysterious
Chinese bio lab discovered in remote California city.
Bottom
line
Wall Street pessimists are
still wrong.
https://www.nytimes.com/2023/07/28/business/stock-market-bears.html
Are current valuations at an
extreme? (must read)
https://www.capitalspectator.com/looking-for-market-signals-with-extreme-price-changes/
The latest from BofA.
https://www.zerohedge.com/markets/hartnett-everything-overshooting
Reviewing this earnings
season to date.
https://www.zerohedge.com/markets/bar-was-set-extremely-low-why-stocks-are-melting-earnings-season
News on Stocks in Our Portfolios
What
I am reading today
Nonhuman biologics discovered in crashed
UFO’s.
https://www.zerohedge.com/political/non-human-biologics-recovered-ufos-whistleblower-testifies
Monday Morning humor.
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