The Global Right Are Rolling But The Bulls Still Want To Rock: The Action For November 24, 2023
The Times serves up a nasty potpourri of right-wing euphoria this morning as developments across the West signal voter anger at the state of inflation and immigration. Given their inability to agree on what to be conservative about the Right’s good fortune this week can be written off as a cyclical turn with little consequence, and that’s precisely the kind of convenient logic animating the bulls this Friday. The S&P 500 likely rises over the near term, and odds are growing that we break new yearly highs and try to retest the all-time highs before Santa heads back home.
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.
MOVE Index Of Bond Volatility: Fixed income volatility is steady and implies modest inflation expectations and stable interest rates to come, potentially bullish for equities and the global economy.
Inflation Expectations: Investors expect lower inflation over the coming years, implying lower interest rates to come, 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.
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.
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 some risks the bulls need to climb over, all of which look eminently doable for the near term, including:
Volatility of Volatility & Put/Call SKEW Metrics: Derivatives trading in volatility is heightened and signals that active investors are concerned equities are going lower.
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