Ecological Tradeoffs Make The Climate Summit As Big A Joke As This Year’s Bull Market: The Action For December 1, 2023
The Times showcases several comical tradeoffs as governments and activists vainly try greening the planet, but the summit sponsors in Dubai can easily spin this into an era of good feelings by taking a cue from global Wall Street. Turning persistent inflation, protectionist policies and big government stimulus into a recipe for a goldilocks economy has worked all year for the Bulls and such spin looks set to propel the S&P this morning. The S&P 500 likely rises over the near term on its way to a new 52-week high, but the tradeoffs that force interest rates to stay higher for longer will manifest in 2024 and send volatility rising just as climate activists turn their sights on the US election.
The bulls have control for the moment as several indicators reveal confidence in corporate earnings and the macro environment. These include:
Copper Prices: Copper makes the energy transition happen but is also a barometer of global growth, and rising prices signal growth may be better than expected.
Liquidity Metrics: Measures of money flow across the globe are trending upwards lately, which helps equities.
S&P 500 Technicals: The top 40 in the S&P 500 look set to move the market higher.
Short-Term Treasury Rates: Short rates are falling, a sign of moderate inflation and a dovish Fed, potentially bullish for equities.
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.
Based on the action yesterday and overnight there are few risks dogging the bulls as December rolls merrily along, 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.
Shanghai Composite Technicals: Chinese equities are trading poorly and that bodes ill for the global economy.
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.