Equities Roar On Both Sides Of The Atlantic But France Shows How The Other Half Intend To Get Theirs: The Action For January 31, 2024
The two Frances has long concerned French elites and this morning piques the Times’ interest as well, with French farmers laying siege on various French cities and forcing capitulation from the government. Envy from the lower half of the social spectrum has exploded in France like it did on January 6 in Washington, threatening the liberal project in the pioneering democracy of Europe as well. Yet French bulls are just as dismissive as their American counterparts, ignoring the threats and sending equities to all-time highs. I expect the divergence between financial and real sectors to continue as the S&P 500 likely rises over the near term, after a modest pullback today.
The bears have control this morning but I expect after an initial selloff the bulls will reassert control, 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.
Aluminum Prices: Aluminium is a critical input for consumer and industrial goods and rising prices signal better than expected global demand, which is usually good for equities.
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.
Based on the action yesterday and overnight there are some risks the bulls need to climb over, including:
EPS Estimates: In the last week Wall Street analysts lowered profits forecasts for many firms in the S&P 500.
Quality Of Earnings Trend: Over the past few quarters the largest firms have generally experienced worsening credit terms, margins and inventories, signaling future profit stagnation or decline.
Shanghai Composite Technicals: Chinese equities are trading poorly and that bodes ill for the global economy.
Geopolitical Issues: Developments around West and Central Asia are a clear negative for equities.
I am effectively neutral on the market, as my current positions include 3M (MMM), Pfizer (PFE), and a small position in UPRO and a larger position in SPXU, which nets out to a neutral position in equities.