A Tales Of Two Technologies And Political Philosophies As Wall Street Brightens Up: The Action For November 1, 2023

Western capitalism gets a cheer from the Times this morning as the top left header celebrates a Boston biotech breakthrough while the adjacent story points to Iran’s awful use of cyber tech to pull the Middle East backwards. The stark geopolitical lesson is that capitalism builds confidence and leads to breakthroughs, while the statist and theocratic status quo of Asia leads to perpetual violence and hatred. Such deductions help fuel Western economic dominance and that’s on display this morning, as the S&P 500 is set to rise over the near term and shrug off bad economic news from across the East. But I expect the rally to end prematurely as the index falls back to 4050 before the Autumnal correction ends and a profound bull rally emerges.

The bulls have control for the moment as several indicators reveal confidence in the macro environment. These include:

  • S&P 500 Technicals: The top 40 in the S&P 500 look set to move the market higher.

  • Volatility Risk Premium: The VRP signals significant upside in the near term as the VIX has declined relative to actual volatility.

  • Volatility of Volatility & Put/Call SKEW Metrics: Derivatives trading in volatility is muted and signals that active investors are confident equities are going higher.

  • Liquidity Metrics: Measures of money flow across the globe are trending upwards lately, which helps equities.

But there are an equal number of bearish factors based on the action yesterday and overnight, and they will pull markets back down by week’s end:

  • EPS Estimates: In the last week Wall Street analysts lowered profits forecasts for many firms in the S&P 500.

  • Developed Market FOREX / $US: The dollar is getting stronger against most major currencies (€, ¥ and Renmimbi) and that’s usually bad for global growth.

  • Tin Prices: Tin is broadly used across goods and industry and falling prices typically signal worsening growth prospects.

  • Geopolitical Issues: Developments around the Middle East are a clear negative for equities.

My current positions reflect my intermediate-term bullish forecast, and include 3M (MMM), Pfizer (PFE), and a large position in UPRO that is largely hedged by an offsetting position in SPXU, which nets out to a long position in equities.

Warmth Is Wealth