Global Disunity At UNGA Saddens But Central Bank Disunity Gladdens The Bulls: The Action For Wednesday, September 20, 2023
Biden’s modest rhetorical skills are no match for the bewildering crosscurrents affecting nations from Canada To India To Russia and North Korea, but this doesn’t affect the bulls nearly so much as diverging central bank policies in Washington, Tokyo and Beijing. With liquidity slowly draining across the democratic world but rising in autocratic world the bulls can afford to extend their exuberance through the normally volatile Autumn. But the divergences can’t last and eventually the nasty politics on display at the UN will affect confidence in the global economy. For now the S&P 500 likely rises over the near term, only to reverse course and fall back to the 4450 level as September draws to a close.
The bulls have control for the moment as several indicators reveal confidence in corporate earnings and the macro environment. These include:
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.
Volatility Risk Premium: The VRP signals significant upside in the near term as the VIX has declined relative to actual volatility.
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.
But the action yesterday and overnight reveals that bearish factors outnumber the bulls and set up crosscurrents that will force equities down, including:
Russell 2000 Technicals: Small stocks are breaking down and reflect declining confidence in economic growth.
Shanghai Composite Technicals: Chinese equities are trading poorly and that bodes ill for the global economy.
Short-Term Treasury Rates: Short rates are rising, a portent of higher inflation and/or Fed rate hikes, potentially bearish for equities.
Long-Term Treasury Rates: Long rates are rising and that will reduce the attraction of equities while cooling the housing and auto industries to the detriment of economic growth.
WTI Crude Prices: Oil and by extension gasoline is getting more expensive and that in itself hurts consumers and the global economy.
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.