The Morning Call
7/24/23
The
Market
Technical
The S&P maintained
its upward bias as investors became increasingly convinced that the ‘inflation
in the rear view mirror accompanied by a soft landing’ scenario was unfolding. Last week’s economic data certainly didn’t
support the notion of a soft landing.
But to be fair, it was only one week of stats. Let’s see if there is any follow through. At the moment, I think we have to assume that
the S&P will at least test the upper boundary of its short-term uptrend
(~4632) and perhaps its all time high (~4818).
However, technicians seem to think that prices are getting a little
stretched to the upside; so, a modest retreat or a period of backing and
filling shouldn’t come as a surprise.
While I continue
to be hung up on the current level of (excessive) valuations as well as the
level of confusion reflected in the Markets as a whole, if a sell off results
in any of our stocks reaching a Buy level, I will likely begin to nibble.
Margin debt up in
June.
https://www.advisorperspectives.com/dshort/updates/2023/07/21/margin-debt-up-june-2023
For the bulls.
https://savantwealth.com/savant-views-news/article/the-tradeoff-are-we-there-yet/
If this is a bear market
rally, it is unprecedented.
https://www.zerohedge.com/markets/if-stock-bear-market-rally-its-unprecedented-one
With the “inflation
in the rear-view mirror accompanied by a soft landing’ scenario gaining
credence, bond prices continued to rally (last week I said ‘interest rates
rally---clearly a misstatement) ---although as I noted above, the stats as well
as the performance of the yield curve [it started inverting again] from last
week hardly portray a ‘soft landing’. So,
there is still enough confusion about to keep the level of uncertainty in the
yellow zone.
GLD was on a
roller coaster 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.
You would expect that when interest rates are declining.
The dollar dramatically reversed the prior week’s
monster whackage. That suggests that
investors believe that either the Fed will stay tight or that the economy will
be stronger than many expect (of both). That
is somewhat out of sync with the other indices.
On the other hand, after the pummeling it took in the prior week and the
fact that it (1) bottomed right on the lower boundary of its short-term trading
range and (2) had those multiple higher gap down opens above it, this may have
been nothing more than a technical bounce.
Let’s see if we get follow through this week.
Friday in the charts.
Signs
of overheating.
https://www.zerohedge.com/the-market-ear/overheating
Fundamental
Headlines
The
Economy
Last Week Review
Last
week’s US stats were slightly downbeat with the primary indicators overwhelming so (one neutral, four negative). Overseas,
the data was meager but very positive.
The
US results certainly don’t square with either Markets’ takeaway or the growing
consensus among leading economists that (1) inflation is in the rear-view
mirror and (2) we will get a ‘soft’ landing.
The
Markets’/economists 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.
For
example:
https://www.aier.org/article/fed-up-with-tightening/
I
choose door 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.
Deflation
while food prices are rising?
https://www.zerohedge.com/economics/deflation-while-food-prices-are-going-you-cannot-be-serious
However,
as you know, I still believe that a recession is in the offing precipitated
largely by the Fed’s current hawkish stance. I am just not sure how deep it
will be. But, whatever the case, my ‘Fed
chickens out’ scenario also remains in play.
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%.
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.conference-board.org/topics/us-leading-indicators
However,
Jeffrey Snider believes that the bond market is signaling just that.
China
is not helping.
https://www.zerohedge.com/the-market-ear/china-shit-show-no-one-saw-coming
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.
Federal spending continues to expand as a percentage of GDP.
https://www.cato.org/blog/why-federal-spending-expanding-share-economy
The
Economy
US
International
The July German
flash manufacturing PMI came in at 38.8 versus estimates
of 41.0; the flash
services PMI was 52.0 versus 53.1; the flash composite PMI was 48.3 versus
50.3; the July EU flash manufacturing PMI was 42.7 versus 43.5; the flash
service PMI was 51.1 versus 51.5; the flash composite PMI was 48.9 versus 49.7;
the July UK flash manufacturing PMI was 45.0 versus 46.1; the flash services
PMI was 51.5 versus 53.0; the flash composite PMI was 50.7 versus 52.4.
Note: (1)
reminder, anything below 50 signifies negative growth and (2) the services PMIs
have to date been the strength in the economies. In this latest reding, they are all below
expectations.
News on Stocks in Our Portfolios
What
I am reading today
Nobel prize winning physicist says climate
change is BS.
Monday Morning humor.
https://babylonbee.com/news/statue-of-liberty-now-holding-sign-pointing-to-new-jersey
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