Not Just Irrational But Truly Unseemly Exuberance As The Bulls Ignore Warning Signs Across The World: The Action For November 15, 2023

Next to the Times top right article on the horrors inside Gaza and Israel’s determination to do what most any other nation would in similar circumstances are a farrago of issues that capture the surreal zeitgiest of our times. Nothing can rationalize the disparate priorities that cloud the political and business world just as nothing can rationalize the ever higher valuations in store for equities. Despite the newsflow the S&P 500 likely rises over the near term as the foolish 2023 rally continues onto its rendezvous with the 2022 highs.

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

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

  • Russell 2000 Technicals: Small stocks are breaking out and reflect surging confidence in economic growth.

  • Shanghai Composite Technicals: Chinese equities are trading well and that bodes well for the global economy.

  • Inflation Expectations: Investors expect lower inflation over the coming years, implying lower interest rates to come, potentially bullish for equities.

  • Short-Term Treasury Rates: Short rates are falling, a sign of moderate inflation and a dovish Fed, potentially bullish for equities.

  • Long-Term Treasury Rates: Long rates are falling and that will improve the attractiveness of equities while boosting the housing and auto industries to the benefit of economic growth.

  • High Yield Credit Spreads: The cost of borrowing is falling for lower-rated firms compared to their AAA siblings, a confident signal of an improving economy.

  • BTP-Bund Spread Of Italian & German Bonds: Italian default risk and a corresponding crisis for the Euro are muted, which is critical for European stability and is good for global growth.

  • WTI Crude Prices: Oil and by extension gasoline is getting cheaper and that in itself helps consumers and the global economy.

  • Zinc Prices: Few commodities are as broadly important as zinc, and rising prices for zinc signal better than expected global demand, which is usually good for equities.

  • Economic Data: The latest economic data regarding wholesale inflation is better than expected, a positive sign for equities

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

Based on the action yesterday and overnight there are only geopolitical risks clouding the way for markets:

  • 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