The Morning Call
9/21/26
The
Market
Technical
The S&P was up
on the week, closing back above its 50 DMA and its former all-time high. Short
term, it has now set three lower highs and three lower lows. On a longer
timeframe, the index is above all DMAs and in uptrends across all time
frames. This suggests that this recent
small correction is just that---small.
So, at this point, there is no reason to get beared up. That said, the fundamentals (fiscal policy,
monetary policy, war, oil, tariffs) give me the willies. So I will continue to
sit on my hands.
Fear is gone; the
risks aren’t.
TLT continues to
trade down across all timeframes and is below all three DMAs. Last week’s rate decision
changed nothing. … for
the long bond to rise enough to even challenge the upper boundary of its very
short term downtrend is going to take a series of very positive developments.
GLD staged a
modest rally, bouncing off the lower boundary of its short term uptrend, its 50
DMA (resetting it to support) and its 100 DMA (now resistance; if it stays
there through the close on Tuesday it will revert to support). I continue to have directional uncertainty
due to the fundamentals that historically drive gold prices: …higher interest
rates versus a love stew of the continuing inflationary pressures from lousy
fiscal policy, the economic fallout from two wars and higher tariffs. While I
am unsure of the outcome, for the moment I am holding on to my GDX.
The dollar had a great week, driven by the raise in
interest rates. While it (1) negated a
very short term downtrend and (2) reset its 50 DMA to support and is now above
all three DMAs, it remains in an extremely wide trading range. Short term, it
seems to be biding its time waiting for a clearer fundamental picture. Longer term, it remains in a ‘no man’s land’.
Friday in the charts.
https://www.zerohedge.com/markets/bitcoin-bullion-bid-amid-wild-week-energy-war-spreads-bankers-hike-ai-anxiety-peaks?gift=eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJuaWQiOiIxMTI1NTMyIiwic2VuZGVyVWlkIjoiUUhnc3BaZVVFS2E3RHhXM216eFlKbjhaWEFoMiIsImlhdCI6MTc4OTkzMDA2MSwiZXhwIjoxNzkyNTIyMDYxLCJhdWQiOiJ6aC1naWZ0In0.Ih4JgIbHO4NYN0gmlnaqiYukBkGRkzhyV_fe5Apmcv0
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
Monday morning
setup: US futures are higher driven by Trump / Xi optimism around AI, Middle
East, and trade with Middle East kinetic headlines over the weekend reflecting
a pause to escalation. Sentiment was lifted by signs of progress on
geopolitical issues: it’s a big week for talks, with Trump set for a summit
with China’s Xi Jinping on Thursday and a possibility of talks with Iran’s
president at the UN General Assembly. As of 8:00am ET, S&P futures are
up 0.7%, rising to 7,770 and less than 1% from all-time highs, as Nasdaq
futures gain 1.1%, with tech strength on full display in APAC trade
and also leading in premarket US trading with broad-based strength across
Semis, Memory, and Mag7. Cyclicals ex-Energy are leading Defensives with the AI
theme boosting Tech / Industrials within Cyclicals. Within Defensives, both
healthcare and staples have pockets of strength as today looks like a
broad-based rally in both the SPX and within Tech. WTI is below $100, dropping
for a fourth day, fuel prices are lower, while bond traders reckon the Fed will
succeed in its fight against inflation helping drive bond yields lower as
the yield curve bull flattens, as the USD drops to session lows. This is
bidding up risk assets with Equities leading. The Fed’s Goolsbee speaks 6.30am
with previous speakers Fri / Sun offering a hawkish view which reiterates
Warsh’s key points. According to JPM, given the macro and earnings strength,
the market may be underpricing the number of hikes through YE27. There is
little on today's calendar: we get the Aug Chicago Fed Nat Activity Index
(est. -0.04) at 8:30am ET.
Fundamental
Headlines
The
Economy
Last
week, the US stats were balanced as were the primary indicators---one plus, one
minus. Overseas, the data was quite negative with one positive, two neutral and
two negative inflation datapoints.
Regarding
the US numbers, a balanced report generally tells us that the underlying trend
in the economy (in this case growth) is intact. As noted, there were no inflation stats. That keeps
my ‘good as it is going to get but not any worse’ forecast alive and well.
However,
I would be remiss if I didn’t remind all that there is a number of analysts who
I respect that point out that our current inflation is the result of supply
shortages (oil, tariffs)---which is a problem that monetary policy can’t cure. Hence, raising interest rates is not the
solution as it will only stifle demand (i.e., it will slow the economy down and
perhaps push it into recession).
Which
leads me to the first comment I have on last week’s major economic developments:
the FOMC raised rates and the accompanying dot plot suggested there is more to
come. It is clear that the bond market forced the Fed’s hand. So the bond boys apparently don’t agree with
the above quoted analysis that current inflation is caused by supply shortages.
The biggest reason for their concern, of course, would the irresponsible fiscal
policy---increased demand driven by our horrendous deficit spending. And to be sure, there is truth to that.
The
question is the extent to which rising prices are a function of raw material (oil)
and self-inflicted (tariffs) shortages (oil) or demand driven by uncontrolled
government spending. Clearly both are likely
contributing but their relative impact is important because the remedy being applied
(higher rates) only addresses demand-pull and if it is of lesser importance
then a series of rate hikes would do more damage than help. At this point, I certainly
have no clue to the answer. But I think
that it is important to hold this conundrum in the back of our mind as we view future
economic data for signs that rate hikes are the answer but rather the problem.
https://www.zerohedge.com/markets/fed-rate-hike-wont-fix-inflation-it-targets
Financial repression.
https://bondvigilantes.com/blog/2026/09/the-great-repression/
Second,
the war in the Middle East continued to ratchet up. There are rumors of a massive increase of US
arms shipments to Israel (see the Tucker Carlson’s assertions in last Thursday’s
Morning Call) which could lead to a dramatic escalation in the fighting
accompanied by a further decline in oil supplies. Clearly, that would only provide more ammo
for the ‘supply driven inflation’ advocates.
Third:
I continue to stew over the health of the AI buildout. I have already
elaborated on the potential problems in earlier notes. So I won’t repeat them. What
keeps me concerned is the continuous flow of analysis questioning the viability
of the spend. To be sure, there is plenty of equally responsible analysis by
equally responsible analysts confirming the positive case for the future payoff
of the current spend rate.
My problem is that I am not smart enough to figure out which case is the
more likely outcome. So, I continue to hold positions in both the chip
manufacturers and the hyperscalers---although their performances has been such
that I have Sold Half of virtually every stock. And I am not running for the
hills in the rest of my Portfolios. That said, I have my finger on the trigger
for several holdings. And should the negative case appear the more likely outcome,
I will take some money off the table.
I
want to emphasize that the issue that I am focused on is the economics of the AI
buildout not the doomsday ‘we will all be dead in ten years’ variety. I made clear in last Friday’s Morning Call
that I am quite cynical about the motivations of the doomsayers whether they
are from the industry (who want the government to impose regulations that would
squash potential competition) or government (who never lets a crisis go to
waste in order to impose further on our collective liberties)
(3)
No, AI Is Not About To End the World - by Quoth the Raven
Jeffery
Gundlach’s thoughts.
Oracle
loans fall to distressed level.
My
bottom line remains unchanged: doubts on the trajectory of the
economy/inflation/AI buildout are increasing---at least in my mind. Not yet
enough to warrant a change in my outlook but enough to keep me on the sidelines
with my finger on the warning light button.
US
The
August Chicago national activity index came in at -0.04 versus forecasts of
+0.2.
International
Other
The latest Q3 nowcast.
https://econbrowser.com/archives/2026/09/gdpnow-goes-gangbusters
The K shaped economy: reality or media driven?
https://talkmarkets.com/article/k-shaped-economy-reality-or-media-driven-perception
The state of goods production shows rebound
continues but with a wobble.
https://bonddad.blogspot.com/2026/09/three-reports-on-state-of-goods.html
Overnight
News
Ukraine pounds Moscow refinery.
Monetary
Policy
A hawk in dove’s clothing?
https://www.carsongroup.com/insights/blog/a-dove-in-hawks-clothing/
Bank of Japan raises rates.
Fiscal
Policy
The Fed can’t do it alone.
https://reason.com/2026/09/17/the-fed-cant-fight-inflation-alone-will-congress-do-its-part/
Treasuries have become unappetizing to foreign
governments.
Eroding the US status as a safe haven.
The
Financial System
Private equity turns to more financial
engineering.
https://giftarticle.ft.com/giftarticle/actions/redeem/fc4035a3-ec3c-44c0-a2f2-e17dc9b5a1b3
Investing
Margin debt increased in August.
https://www.advisorperspectives.com/dshort/updates/2026/09/17/margin-debt-finra-august-2026
Bulls still have the edge, but the margin is
narrowing.
https://www.capitalspectator.com/the-bulls-still-have-the-edge-but-the-margin-is-narrowing/
News (but not a Buy recommendation) on Stocks
in Our Portfolios
What
I am reading today
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