Isolationist Republicans Are As Myopic As The Bulls On Wall Street And November Is Too Far Away To Open Their Eyes: The Action For February 1, 2024
The Times takes on the triptych of geopolitical issues animating the red meat wing of the GOP, namely declining support for Ukraine’s fight against right-wing Russia, the incentives pulling illegal immigration and the persistent war against radical Islam across the Middle East and beyond. The lack of good news on all fronts should alert the American Left of the futility in arguing trivial culture wars when so much is at stake across the world. But this year’s election is likely to hinge on cultural issues like immigration, souring the mood across the country. For the bulls this holds no financial corollary and so the S&P 500 is poised to make news highs shortly, despite the potential for a major drop in confidence as we approach the Autumn of 2024.
The bulls have 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.
Short-Term Treasury Rates: Short rates are falling, a sign of moderate inflation and a dovish Fed, potentially bullish for equities.
Long-Term Treasury Rates: Long rates are falling and that will improve the attractiveness of equities while boosting the housing and auto industries to the benefit of 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, including:
Volatility of Volatility & Put/Call SKEW Metrics: Derivatives trading in volatility is heightened and signals that active investors are concerned equities are going lower.
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.
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.