Iowa’s Famous Stubborness Finds Kindred Spirit Among The Bulls On Wall Street: The Action For January 9, 2024
The Times highlights Iowa’s unique shift among upper Midwestern states toward red-meat Trumpism and feigns bewilderment at its causes. But the stubbornness and straightfowardness of the Hawkeye State has been well-known since The Music Man hit Broadway and explains why Iowans refuse to give up their demand for radical change in Washington. I see the rest of the country radicalizing as well over time and this finds an unseemly parallel in the radical optimism that still pervades Wall Street after the mindless runup in December. Only a strong disinflationary print this Thursday can validate bullish enthusiasm in the face of so much long-term bad news and short-term horror, and if the bond vigilantes are right that won’t happen. The S&P 500 likely rises over the near term, but fears of a break in the disinflation trend likely set in soon and drive the market back to last October’s lows.
The market is taking a breather in early trading but the bulls likely retain control for the moment 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.
Russell 2000 Technicals: Small stocks are breaking out and reflect surging confidence in economic growth.
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, which will likely dominate later in the week, including:
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.
Geopolitical Issues: Developments around the South China Sea, Middle East and Ukraine are clear negatives for equities.
My current positions reflect my near-term bullish forecast, and include 3M (MMM), Pfizer (PFE), and a moderate position in UPRO that is partially hedged by an offsetting position in SPXU, which nets out to a long position in equities.