The Morning Call
9/28/26
The
Market
Technical
The S&P was up
on the week, negating a very short term downtrend thereby remaining 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. There are some negatives: (1) last week’s rise was kicked off by a big
gap up open which needs to be filled and (2) breadth is horrible. Still it
suggests that the long term uptrend is solid and will remain so as long
earnings growth stays strong (which it has). On the other hand,
the fundamentals (fiscal policy, monetary policy, war, oil, tariffs, Oracle’s
force majeure) give me the willies. So I will continue to sit on my hands (though I bought a
small position in TJX last week).
Conversely, there
was no joy in bond land. TLT continues to trade down across all timeframes and
is below all three DMAs. It says that the bond boys are not nearly as sanguine about
rates and inflation as their stock counterparts. I don’t see anything that would
suggest a reversal… 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.
I was a bit
surprised that the plunging long bond didn’t have a greater impact on GLD. While
it declined, falling below both its 50 and 100 DMAs, it held above the lower
boundary of its short term uptrend. That said, the pin action in TLT and UUP
only adds to my uncertainty over GLD’s direction. If it confirms a break of the
short term uptrend, I will Sell my GDX position.
Gold is breaking.
The dollar had another great week, driven by the rise
in interest rates. However, it still remains in an extremely wide short term trading
range. On a very short term basis, it is in a clear uptrend that will likely continue
as interest rates move higher.
Friday in the charts.
https://www.zerohedge.com/markets/shaken-stirred-agents-beat-bonds-week-punchy-pmis-diplomatic-duds-energy-angst?gift=eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJuaWQiOiIxMTI2MzA2Iiwic2VuZGVyVWlkIjoiUUhnc3BaZVVFS2E3RHhXM216eFlKbjhaWEFoMiIsImlhdCI6MTc5MDM2Nzc3MywiZXhwIjoxNzkyOTU5NzczLCJhdWQiOiJ6aC1naWZ0In0.ZJ6EeHGoa3FYTRpXzt4Wd3HgAwg3Gx8el9FiKgj86q0
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
The latest from
Goldman’s lead hedge fund trader.
The latest form Goldman’s
derivatives trader.
Monday morning
setup: US futures are lower with Tech underperforming, alongside a drop in
treasuries, as fading hopes for an imminent breakthrough in the Iran
war sent oil prices higher and reignited worries that inflation is heating up.
As of 8:00am ET, S&P 500 futures are down around 0.5% with Nasdaq
futures sliding by 0.8% as semis and memory stocks underperform the group.
Defensives are leading cyclicals with credit cards, defense, energy, insurance,
and restaurants acting as pockets of strength. Oil is sharply higher
after Iran stuck to its seven-day proposal for reopening the crucial
Strait of Hormuz, saying it won’t soften its conditions, while Donald Trump
sent mixed signals about his willingness to reach a deal. He told Axios that
Tehran has overplayed its hand but added that he expects negotiations to resume
this week. Adding to tensions, UK police are investigating a potential terror
plot after five men were arrested near an air base used in US strikes against
Iran. The jump in oil has pulled bond yields 4-7 bps higher as the curve
flattens, the 10Y trading at 5.21% after hitting a new multi-decade high of
5.23% earlier. The DXY dollar index is higher despite weakness in USD/JPY and
GBP/USD. Commodities are mixed with energy leading, metals under pressure
dragged by precious which appears to be driven by temporary higher margin
requirements in China for Golden Week; ags are lower. More than a dozen Fed
officials are scheduled to speak this week beginning Monday, and heavy US
economic slate includes September employment report Friday. Today's US
economic data slate includes only September Dallas Fed manufacturing activity
at 10:30 a.m. Fed speakers include Bowman (8:15 a.m.), Cook (1:25 p.m.) and
Barkin (1:30 p.m.).
Fundamental
Headlines
The
Economy
Last
week, the US stats were upbeat as were the primary indicators---one plus, one neutral.
No inflation numbers. Overseas, the data was also positive with no price measures.
These
reports keep both my forecasts for growth (muddle through) and inflation (good
as it is going to get but not any worse) on track. They don’t, however, resolve
one of the major economic issues facing us right now: what is the appropriate monetary
response to inflation that is being driven largely by supply shortages versus demand
pull?
In
speech last week, Chicago Fed chief Goolsbee provided a possible resolution to
this dilemma, pointing out that higher interest rates can have a restraining
impact on some supply shortage problems. Meanwhile, several other Fed governors
piled on the rate hike bandwagon. So, I think we can expect several more
increases in the not so distant future. Whether Goolsbee is correct is another
issue. So, until higher rates start showing up in lower inflation data, I don’t
think that we can safely assume that the Fed has the problem in hand and inflation
is headed lower; particularly in light of the fact that it does nothing to
change the course of a misguided, gluttoness, irresponsible fiscal policy which
I believe is a major contributor to our current inflation problem.
That
said, I am not economist and can’t claim to have any clue as 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 not the answer but
rather the problem.
Wall
Street faces a new rate regime.
The rise in real rates.
https://econbrowser.com/archives/2026/09/is-it-real
What current yields
are telling us.
And what they don’t.
https://www.stockmarketmedia.com/2026-09-25/10-year-back-2007-levels
Despite
everything in Washington, manufacturing is booming.
https://bonddad.blogspot.com/2026/09/despite-everything-in-washington.html
Another
development that should be mentioned is Friday’s (for the umpteenth time) noise
about a possible resolution to the war with Iran. This remains one of the ‘boy
cries wolf’ situations where we have heard this routine so many times that the reasonable
response at the moment is ‘I’ll believe it when I see it and I am sure not
putting any money on it’. Trump’s subsequent comments confirm it.
I
continue to stew over the health of the AI buildout. And that wasn’t helped by
Oracle’s Thursday force majeure notice on its huge New Mexico installation. Clearly,
that supports the line of analysis questioning the viability of the spend.
While
this certainly heightens my alert status, I am not yet bailing out of my AI
related holdings. 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. 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 more 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 …. 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)
My
bottom line remains unchanged: my doubts on the trajectory of the
economy/inflation/AI buildout are increasing. However, as long as earnings growth
remains strong, I can’t see either an economic decline or a major sell off. Higher
inflation is another matter.
https://www.capitalspectator.com/treasury-yield-surge-pressures-rate-sensitive-shares/
US
From late Friday:
The September
final consumer sentiment index was 48.1 versus forecasts of 47.6.
https://mishtalk.com/economics/consumer-sentiment-drops-in-september-to-just-above-record-lows/
International
Other
Measuring
government, household, and corporate debt as a percentage of GDP by nation.
https://politicalcalculations.blogspot.com/2026/09/ranking-government-household-and.html
Iran
Weekend news
Trump
rejects Iran offer (don’t forget the Tucker Carlson assertion).
Oil flowing through the Strait of Hormuz increases.
Saudi
Arabia restarts critical pipeline.
https://www.zerohedge.com/energy/saudi-arabia-restarts-critical-hormuz-bypass-pipeline
Fiscal
Policy
Bond markets are the canary.
https://www.washingtonpost.com/opinions/2026/09/24/britains-high-bond-yields-are-warning-america/
A plea to make
the dollar great again.
AI
AI spending is up.
The
Financial System
The commercial real estate losses are moving
from paper to reality.
https://www.zerohedge.com/markets/commercial-real-estate-crash-moving-paper-losses-realized-losses
Investing
Even the richest Americans can’t beat the Market.
The easy money fairy
tale.
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in Our Portfolios
What
I am reading today
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