The Morning Call
12/11/23
The
Market
Technical
The S&P
maintained its upward momentum albeit at a less certain pace. Nonetheless, it
is closed just below the upper boundary of its short term trading range. If it
does successfully challenge that boundary, then it will likely mark the
beginning of year end seasonal rally.
I remain bothered
(1) on the technical side by those multiple, large gap up opens down below and
(2) on the fundamental side, by lack of concern of our ruling class over the
escalating budget deficit and national debt.
If you are a
trader, you probably want to play the reset of the short term trend through
year end (if it occurs). As an investor, I will be making my Sell list.
What happens after
a 20% up year in the stock market?
https://awealthofcommonsense.com/2023/12/what-happens-after-a-20-up-year-in-the-stock-market/
Has the Market
front run the Santa Claus rally?
Santa
Claus Rally Front Run By Bullish Optimism? - RIA (realinvestmentadvice.com)
The long bond had
a raucous week, successfully challenging (1) its very short term downtrend and
(2) its 100 DMA, resetting it to support. In the process, it made two more gap
up opens and one gap down open. I interpret that pin action as reflective of
investor confusion over the economic dataflow---early in the week, it was
euphoria over the potential of a soft (or no) landing, then later the fear
(based on the employment stats) that the Fed might stay ‘higher for longer.’ I remain in the ‘I don’t have a clue’ camp.
While it looked
like gold was going to break above its all-time high on its latest (third)
attempt, it was not to be. Until it does so, I see no reason to be invested
here.
The dollar had a good week. It failed to successfully reset its 100 DMA from support to resistance and, thus, remains above both its 100 and 200 DMAs as well as in short and intermediate term uptrends. That suggests that investors believe that either the US economy is going to be the prettiest horse in the glue factory or that rates are going up. I won’t venture a guess.
Friday in the
charts.
https://www.zerohedge.com/markets/cryptos-jump-commodities-dump-yield-curve-slumps-goldilocks-week
Fundamental
Headlines
The
Economy
Last Week Review
Last week’s
economic data was mixed (four plus, four neutral, four negative) as were the primary
indicators (one positive, one negative), leaving me still uncertain as to
whether the coming landing is soft, hard or we have no landing at all. The
consensus is for a soft landing but I think that it is way too soon to be
betting on that outcome.
Investors also
appear convinced that inflation is and will continue to subside. I think that
is probably correct in the short term. However, longer term, I believe that the
most important economic factor is the potential
(inflationary) impact of a grossly irresponsible fiscal policy which if
left unresolved will ultimately push interest rates and inflation to higher
levels, risking a tighter monetary policy and impeding the economy’s ability to
grow.
The other issue
that bothers me is the growing political division within the country. I touched
on this last week and won’t repeat myself. But the bottom line is that I think
that there is a decent probability for a disruption in the social/political
order which almost certainly would not be good for the economy.
US
International
November YoY Japanese machine tool orders were
down 13.5% versus forecasts of -12.0%.
November YoY Chinese vehicle sales were up
27.4% versus predictions of +18.0%.
Other
The
Fed
Fed operating losses are piling up.
Fiscal
Policy
The income tax paradox.
https://johnhcochrane.blogspot.com/2023/12/the-income-tax-paradox.html
Recession
For the optimists---things that you don’t see
in a recession.
https://www.carsongroup.com/insights/blog/things-you-dont-see-in-a-recession/
Consumer sentiment soars in December.
Geopolitics
So you think Russia is losing in Ukraine?
https://www.zerohedge.com/geopolitical/escobar-moscow-rocks
Bottom line
Valuations are
poised to snap.
https://www.advisorperspectives.com/commentaries/2023/12/08/global-valuations-rubber-band-snap
Only the rates
market is pricing in a recession.
https://www.ft.com/content/78eacd4a-5001-4eba-9df6-34bb657f2227
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