The Morning Call
2/17/26
The
Market
Technical
The roller coaster ride continues. The
S&P fell below its all-time high (again) and its 50 DMA (again)---after
making a new lower high. On the other hand, the index bounced off its 100 DMA
for a second time. So 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.
More selling this
week?
Seven charts to
stress you out about the market.
The latest from
Goldman’s flows guru.
The bond market
staged a Titian III formation, souring above a very short term downtrend (the green
line). We have seen this kind of short term spike before (e.g., last September)
that came to nothing. It is still in downtrends across all major timeframes;
and 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 couple of new minor higher lows and higher highs. That encourages
me to believe that the worst is over. But I would still like a bit more follow
through before re-establishing a GDX trading position.
Goldman gold guru
sees upside risk in gold.
The good news---the dollar bounced off the lower boundary
of its intermediate term uptrend and is trying to hold above the lower boundary
of its short term trading range. (like the S&P and its all-time high, UUP
traded below the lower boundary of its short term trading range, then immediately
reversed itself, which leaves the trading range intact). Plus, it has that huge
gap down open overhead which needs to be closed. The bad news is that it has
made two lower highs. My bottom line remains unchanged. It is still an ugly
chart, though the sharp bounce off the intermediate term uptrend offers hope. Follow
through.
Politics
is now driving the dollar.
https://www.ft.com/content/7bd2f678-d511-431e-8732-62639ec2763f
Friday in the
charts.
Friday in the technical stats.
https://www.barchart.com/stocks/momentum
https://www.barchart.com/stocks/sectors/rankings
https://www.barchart.com/stocks/signals/new-recommendations
Fundamental
Headlines
The
Economy
It
was another slow week for stats both here and abroad. In the US, the overall
data was negative though the primary indicators were balanced (two plus, two minus).
The
standout was the CPI number which was lower than expected; although the core
CPI came in as anticipated---which, in my opinion, mutes the positive headline datapoint.
In addition, I would note that one of the main contributors to the upbeat
inflation data was owners’ equivalent rent (shelter) which I have discussed at
length in prior write ups. The problems with taking that as a valid inflation statistic
is that (1) it is a trailing indicator, (2) it doesn’t really measure home
prices and (3) home prices are still extraordinarily high---how many articles
have you seen bemoaning the lack of affordability of new homes?
Overseas,
the stats were slightly upbeat, as was the inflation data (two positive, one
negative).
So, nothing here or abroad that would suggest a
need for rethinking of my economic growth forecast (muddle through).
My ‘inflation is as good as it is going to
get’ prediction is not quite as solid. The aforementioned CPI report raises
some doubt. Plus, as I noted last week, if Walsh truly is a monetary hawk---and
there is much debate about whether or not he in fact is---and he is able to
persuade enough of his colleagues on the FOMC to go along with downsizing the
Fed’s balance sheet, then I will have to alter my forecast---and gladly so. I
am sticking with it at the moment; but it will change if Kevin gets his way.
I would also note that if Warsh is successful in
redirecting monetary policy, he could have an impact on my ‘muddle through’ scenario
depending on how aggressively that policy is pursued.
US
The February NY
Fed manufacturing index was reported at 7.1 versus projections of 3.0.
International
December Japanese
industrial production fell 0.1%, in line; the Q4 preliminary GDP growth rate
was +0.5% versus +0.1%; preliminary QoQ private consumption was +0.1% versus
+0.2%; the preliminary YoY price index was +3.4% versus +3.5%.
December EU
industrial production declined 1.4% versus forecasts of -1.2%.
The December UK unemployment
rate was 5.2% versus expectations of 5.1%; December (3 mo./YoY) average earnings
were up 4.2% versus +4.4%; Q4 YoY labor productivity fell 0.6% versus -0.5%.
January German CPI
was up 0.1%, in line.
The February EU
economic sentiment index came in at 39.4 versus estimates of 44.0; the February
German economic sentiment index was 58.3 versus 61.0; the February German
current conditions index was -65.9 versus -67.0.
Other
Nosebleed housing prices are a signal, not a
reason for policy change.
Breaking down last Thursday’s existing home
sales report.
Update on the Q4 GDP nowcast.
https://www.capitalspectator.com/us-growth-expected-to-moderate-in-next-weeks-q4-gdp-report/
The economic week ahead.
ECONOMIC
WEEK AHEAD: February 17–20
Fiscal
Policy
Calling the CBO’s GDP forecast into
question. The author makes a good point. But he leaves out an important
consideration---the proclivity of our ruling class to spend every nickel they
can get their hands on. Who is to say that faster GDP growth, higher tax receipts
won’t mean higher spending/deficits/debt?
https://committeetounleashprosperity.com/hotlines/cbos-debt-forecast-wheres-the-growth/
Speaking of our
ruling class (and I wish that I weren’t), they are about to face the need for
social security/Medicare reform---or else.
Why firing 9% of the government labor force
didn’t move the needle.
https://www.zerohedge.com/political/why-firing-9-federal-workforce-didnt-move-needle
Inflation
Companies are jacking up prices again.
https://www.wsj.com/business/price-increases-consumers-businesses-b70e4542?mod=business_lead_story
Tariffs
Americans are paying the bill for tariffs.
https://www.nytimes.com/2026/02/12/business/economy/americans-pay-tariffs-trump-fed.html
And if you don’t
believe it, just ask Trump.
https://mishtalk.com/economics/trump-to-roll-back-some-steel-and-aluminum-tariffs-due-to-inflation/
Investing
Why US Treasuries
are losing their ‘safety’ premium?
https://thetwocents.substack.com/p/the-safe-assets-that-werent
The
point of deception.
https://www.permanentequity.com/unqualified-opinions-roll/the-point-of-deception
Update
on the Buffett indicator.
Feverish
rotation out of the digital into physical world.
What
happens if it continues?
Brazil
proposes national bitcoin reserve.
The
latest from BofA.
Hedge
funds were buying tech last week.
https://www.zerohedge.com/markets/after-record-shorting-hedge-funds-bought-most-tech-stocks-2021
A
word of caution on international stocks.
https://www.zerohedge.com/markets/weak-dollar-narrative
Relentless
bond math.
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