The Morning Call
2/23/26
The
Market
Technical
The roller coaster ride continues. The
S&P bounced up off its 100 DMA twice and down off its 50 DMA once, closing above
the 100 DMA but still below its all-time. It maintained this very narrow
trading range despite a lot of news events that I thought would have a more
significant impact (FOMC [more hawkish] minutes, the Supreme Court tariff
ruling, impending war with Iran, rumblings in the private credit market and contradictory
economic data on both growth and inflation). And maybe that in itself is the
explanation---investors are so confused that they need time to properly
discount these events. Of maybe all this was already priced in (?) Whatever the reason, the battle between the
buyers and sellers continues with good arguments for follow through in either
direction. And it is follow through that I am waiting for. Patience.
The Mag 7 just
triggered a sell signal.
On the other hand,
nobody owns the right tail (risk to the upside).
https://www.zerohedge.com/the-market-ear/nobody-owns-right-tail
Extreme shorts.
https://www.zerohedge.com/the-market-ear/extreme-shorts
Everyone is
hedged.
https://www.zerohedge.com/the-market-ear/everyone-hedged-thats-problem
The bond market continued
its Titian III formation Monday and Tuesday, then sold off the rest of the week.
While it closed above its 100 DMA, it also remained in downtrends across all
major timeframes. In my opinion, until it breaches the upper boundary of its
short term downtrend, this pin action is nothing more than a rally in a bear
market. I continue to believe that the only circumstance I can see pushing
rates meaningfully lower would be a recession (with the caveat that a more
hawkish Fed near term would bring about lower long rates long term).
Gold continued its
recovery, making a second higher lower; While it has yet to make a corresponding
higher high, it appears to be in the process. If it does so, that would be
encouraging and suggest that the worst is over. But I would still like a bit
more follow through before re-establishing a GDX trading position.
Goldman on gold.
The dollar continued its bounced off the lower boundary of
its intermediate term uptrend and appears to be about to challenge both its 100
DMA as well as the very short term downtrend (green downward sloping line). Also
encouraging is that huge gap down open overhead which needs to be closed. Nevertheless,
for the moment, my bottom line remains unchanged. It is still an ugly chart.
Friday in the
charts.
Friday in the technical stats.
https://www.barchart.com/stocks/momentum
https://www.barchart.com/stocks/market-performance
https://www.barchart.com/stocks/sectors/rankings
https://www.barchart.com/stocks/signals/new-recommendations
Fundamental
Headlines
The
Economy
It
was a busy week for stats both here and abroad. In the US, the overall data was
positive with the primary indicators slightly upbeat (three plus, three
neutral, two minus---and one of those negatives was a price point).
After
having negative data the prior week, the return to upbeat reports confirms my ‘muddle
through’ forecast which was generally supported by the overseas figures (though
those were dominated by the flash PMI numbers).
The
poor PCE release offsets the positive CPI stat from the prior week, though my ‘inflation
is as good as it is going to get’ outlook remains on ‘iffy’ grounds. Helping to
keep it there were four positive international inflation indicators released
last week. Plus, as I have reported the current narrative among the chattering
class has been that inflation is yesterday’s story. Clearly, my forecast could
be dead wrong; but so far the US data has been mixed. So I am not going to
alter my call just yet; but it remains under consideration.
Aside
from the somewhat confusing statistical data, the week was packed with
significant events (which I noted above) that could portend major changes in
the economy. There wasn’t a lot of market reaction to any of them which
suggests that either they were already priced in or investors haven’t been able
to absorb and properly discount so many events in such a short period of time. I
will count myself in the latter category and await more visibility before making
any adjustments to the outlook.
US
The January Chicago
Fed national activity index came in at .18 versus consensus of .3.
International
The February
German business climate index was 88.6 versus expectations of 88.4; the
February current conditions index was 86.7 versus 86.3.
Other
Private sector balance sheets in excellent
shape.
https://www.apolloacademy.com/us-private-sector-balance-sheets-in-excellent-shape/
New home sales hit new four year high.
Consumer sentiment was stagnate in February.
Weak consumer income and spending warn of
recession.
https://bonddad.blogspot.com/2026/02/december-personal-income-and-spending.html
Weather and weak demand drive flash PMI’s
down.
https://www.zerohedge.com/markets/weather-weak-demand-drive-us-pmis-down-10-month-lows-february
Update on big four recession indictors.
Update on real disposable income per capita.
The economic week
ahead.
ECONOMIC
WEEK AHEAD: February 23–27
Overnight
News
Iran has indicated
it is prepared to make concessions on its nuclear program in talks with the
U.S. in return for the lifting of sanctions and recognition of its right to
enrich uranium, as it seeks to avert a U.S. attack.
Blue Owl’s selloff
is deepening fears about liquidity risks and excesses in the $1.8 trillion
private credit market. Private equity returned fewer profits to investors for a
fourth year as firms sit on $3.8 trillion of unsold assets.
US President Trump
said on Saturday that he will increase the global tariff that was announced on
Friday from 10% to 15% with immediate effect. Trump also stated that the 15%
level is the maximum allowed by law and is still temporary, as Section 122 tariffs,
and they will use the 150 days that the temporary tariff allows to work on
issuing other legally permissible tariffs.
White House
clarified that goods shipped under the USMCA will be exempt from the new global
tariff that US President Trump announced on Friday, although risks
regarding the future of the USMCA loom.
Fiscal
Policy
Why social security won’t go bankrupt.
Why the federal deficit is projected to surge.
https://www.wsj.com/economy/federal-budget-deficit-charts-16456cc0?mod=economy_lead_pos2
Tariffs
Supreme Court rules against Trump tariffs.
https://www.zerohedge.com/political/supreme-court-rules-tariffs
AI
AI isn’t eating software.
https://bondvigilantes.com/blog/2026/02/agentic-ai-isnt-eating-software/
The
Financial System
The latest shock to Blue Owl.
https://www.zerohedge.com/markets/canary-coal-mine-just-froze-here-what-really-happening-blue-owl
Investing
Update on the
outlook for S&P dividends.
https://www.apolloacademy.com/us-private-sector-balance-sheets-in-excellent-shape/
The
latest from Goldman’s hedge fund honcho.
Goldman on the software industry’s vulnerabilities.
https://www.zerohedge.com/markets/straw-man-steel-man-goldman-lays-out-7-software-bear-case-debates
Credit spreads
could get a rude awakening from equity correlation.
https://www.zerohedge.com/markets/credit-spreads-may-get-rude-awakening-stock-correlatio
CAPE ratios and
long term returns.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=6060895
The latest from BofA.
https://www.zerohedge.com/markets/how-hartnett-trading-coming-geopolitical-shock-trade-oil-own-gold
News on Stocks in Our Portfolios
What
I am reading today
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