The Last Party Of 2023 Gets Started As Investors Try Not To Think Of The Year To Come: The Action For December 3, 2023

The Times mischievously banks the lead to the far right of this morning’s paper as the Hunter Biden indictment throws the 2024 election into new spheres of uncertainty, carrying with it economic policy and geopolitical concerns that have so far flown below the radar for investors. And for once Wall Street is following the Times’ lead and ignoring the political disaster to come. Today’s news hogging the financial spotlight is the strong jobs report, which came in even stronger than I expected and points to both robust consumption spending but also higher rates for longer. The S&P 500 likely ignores the negative consequences in favor of the positive after an early morning selloff, and rises over the pre-holiday period as the bulls ride herd on irrational exuberance.

The bears have control just for the moment as a few indicators reveal pessimism on interest rates and the macro environment. These include:

  • MOVE Index Of Bond Volatility: Fixed income volatility is rising and implies higher inflation expectations and higher interest rates to come, potentially bearish for equities and the global economy.

  • Economic Data: The latest economic data regarding jobs and wages is better than expected, a negative sign for Fed rate policy and thus interest rates and equities

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

But based on the action yesterday and overnight there are some factors that will soon flip the markets around, including:

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

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

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

Warmth Is Wealth