The Morning Call
7/17/23
The
Market
Technical
The S&P had a
good week, driven by the lower than anticipated CPI and PPI numbers. It would
appear that some of the confusion that has plagued the Market of late is
unwinding courtesy of that inflation data. The Wall Street narrative, at least
temporarily, has swung from uncertainty to rejoicing that the end of Fed
tightening is now in sight. If this isn’t just a short-term switch in perspective,
that should keep the Market on its upward trajectory with resistance at ~4613
(the upper boundary of the S&P’s short-term uptrend) and ~4818 (its all-time
high). I see no technical reason why those levels won’t be challenged (though valuation
issues keep me skittish).
As you might
expect, when the Wall Street narrative starts to assume that the Fed is done or
near done, interest rates rally and the yield curve starts to uninvert. Bear in
mind that this is one week’s pin action based on two datapoints, so I don’t
think it is necessarily time to tip toe through the tulips. Indeed, last week’s
price action could be explained as nothing more than a TLT technical bounce off
the lower boundary of it intermediate term downtrend. Let’s give it another
week.
GLD’s upbeat performance
was pretty much what you would expect when interest rates decline noticeably
and the dollar gets slammed. In the process, it reset its 100DMA from
resistance to support and negated a very short-term downtrend. That puts it
back in harmony with its intermediate and long-term uptrends.
The dollar got monkey hammered last week, again
something you would expect if the narrative changed to a dovish Fed, especially
if the rest of the global central banks continued to be perceived as hawkish. In
the process, it reset both DMAs from support to resistance. But it also had
multiple gaps down opens which need to be filled. In addition, it finished the
week right on the lower boundary of its short-term trading range which also
suggests reasonable odds of a bounce.
The dollar had a
bad week following the fall in inflation expectations.
https://www.ft.com/content/5ffd648b-2625-43e6-8c1a-73e5f5d7da4c
Friday in the
charts.
https://www.zerohedge.com/markets/dollar-dives-dovish-week-stocks-bonds-gold-crypto-soar
Where the dollar and gold fit in
the evolving global financial system.
Fundamental
Headlines
The
Economy
Last Week Review
Last
week’s US stats were positive (two plus primary indicators, zero minus), with the
standout numbers being below consensus CPI and PPI. Overseas, the data balanced.
The
Markets’ takeaway for the stats was that inflation is in the rear-view mirror. That
squares with the growing consensus among leading economists that inflation is,
indeed, declining and that Fed tightening is in its final innings. Here are
Friday’s WSJ headlines; the gist of all being a lot of ‘on the one hand; on the
other hand,’ BS from Fed officials while everyone else is rejoicing over a new
disinflation era:
WSJ: As inflation goes down, soft landing odds improve.
WSJ: In June inflation eased to
slowest pace in three years.
WSJ: Real Fed debate; what would prompt a rate hke this fall.
They
(i.e. everyone) seem to be either (1) ignoring whether or not the Fed is really
as serious about hitting its 2% target as it says it is [unlikely] or (2)
assuming that it is not and it will settle for a 3% or so goal [very likely] or
(3) assuming that inflation will miraculously return to 2% on its own while the
economy remains healthy [ya, right].
You
know my thinking---the Fed will, as it has always done (ex Volcker), fold when the
economy/Market looks like it could be in trouble---which clearly is not putting
inflation in the rear-view mirror. That is aiding and abetting another round of
inflation as a too easy monetary policy and irresponsible fiscal policies
continue to plague our economy.
When
are these guys going to forgive my mortgage?
BofA
thinks it ain’t over.
https://www.zerohedge.com/markets/hartnett-mission-accomplished
But
wait you say, recession is your current forecast. True and it remains as such. And
to be clear, it will have been precipitated largely by the Fed’s current hawkish
stance. But, given my ‘Fed chickens out’ scenario, it is not the kind of
recession that cleanses the economic system of years (decades) on monetary/fiscal
mismanagement and returns secular inflation to ~2%.
Is
a recession still possible?
Has
a global trade recession already started?
https://www.ft.com/content/1695b888-95ff-4b26-b3ef-1e4dbde74cad
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.
https://www.advisorperspectives.com/commentaries/2023/07/14/inflation-bonds-stock-yield-dillian
Betting
against the crowd.
https://www.zerohedge.com/markets/what-if-crowd-wrong-about-most-important-thing
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.
The
Economy
US
International
Other
Recession
Update on weekly leading economic index.
Bottom
line
The quarterly pattern of
earnings has returned to normal.
https://ritholtz.com/2023/07/q2-2023-earnings/
The end
of an era?
Profit
Growth And Stock Returns - The End Of An Era? - RIA (realinvestmentadvice.com)
News on Stocks in Our Portfolios
What
I am reading today
Monday morning humor.
The Achilles heel of the JFK
assassination
https://www.zerohedge.com/political/achilles-heel-jfk-assassination
A
stirring moment from the recent NEA convention.
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