Trumpist Fraud Meets Biden’s Sophistry As The Markets Swoon: The Action For Wednesday, September 27, 2023
The Times contrasts the dark truth about Trump’s dishonesty with the clear photograph of Biden’s support for the common man but the markets aren’t buying it. Not only are Biden’s EV policies at the heart of the UAW’s problems but supporting union demands contradicts Biden’s supposed desire to lower inflation. As the polls reveal the public’s equivalence of these two leaders so too the markets are questioning whether the middle of 2023 trading range might not be fair value. While the markets are rising this morning the S&P 500 likely falls over the near term, but I expect the market to bottom out soon and rally back toward the middle of the recent range as October begins.
The bears have control for the moment as numerous indicators reveal pessimism on the macro environment. These include:
S&P 500 Technicals: The top 40 in the S&P 500 look set to move the market lower.
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.
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.
High Yield Credit Spreads: The cost of borrowing is rising for lower-rated firms compared to their AAA siblings, a portent of potential defaults to come.
BTP-Bund Spread Of Italian & German Bonds: Italian default risk and corresponding crisis for the Euro are heightened, which can destabilize Europe and is bad for global growth.
Developed Market FOREX / $US: The dollar is getting stronger against most major currencies (€, ¥ and Renmimbi) and that’s usually bad for global growth.
Emerging Market FOREX / $US: Nations like India, South Korea, the Philippines and Mexico are getting weaker against the dollar, and that’s bad for global growth since many key imports are priced in $.
WTI Crude Prices: Oil and by extension gasoline is getting more expensive and that in itself hurts consumers and the global economy.
Gold Prices: Rising gold prices reflect higher potential inflation but less restrictive interest rates, and concerns about geopolitical risks, which is on net bad for equities.
Copper Prices: Copper makes the energy transition happen but is also a barometer of global growth, and falling prices signal growth may be worse than expected.
Based on the action yesterday and overnight the only factor favoring the bulls is the VIX, which despite rising is still within normal ranges. Any spike up in the VIX would likely be viewed as a signal of a bottom. Consequently the volatility risk premium signals significant upside in the near term.
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.