The GOP Pays The Price But Like The Bulls They’re Counting On The Year-End Not The Present: The Action For February 15, 2024

With foreign aid and government funding now in peril the Times sounds the warning this morning on the GOP’s absurd mistakes that cost them a seat in Long Island. Bust since this is pristinely analogous to the warnings the bears give to investors the likely outcome is a continuation of trends rather than a reversal. Both the GOP and the bulls traffic in absurd optimism about year-end results (i.e., a Trump win or earnings growth) and negligence to present-day issues. So the S&P 500 likely rises over the near term, with a correction at least a week away when Nvidia likely satisfies the bulls but leaves nothing left for the imagination.

The bulls have control for the moment as several indicators reveal confidence in corporate earnings and the macro environment. These include:

  • Volatility Risk Premium: The VRP signals moderate upside as the VIX is muted relative to likely moves in actual volatility.

  • Russell 2000 Technicals: Small stocks are breaking out and reflect surging confidence in economic growth.

  • BTP-Bund Spread Of Italian & German Bonds: Italian default risk and a corresponding crisis for the Euro are muted, which is critical for European stability and is good for global growth.

  • Tin Prices: Tin is broadly used across goods and industry and rising prices typically signal better growth prospects.

  • 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, and whcih likely manifest following Nvidia’s earnings report, including:

  • S&P 500 Technicals: The top 40 in the S&P 500 look set to move the market lower.

  • 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 across Eurasia are a clear negative for equities.

My current positions include 3M (MMM), Pfizer (PFE), and a large position in UPRO and a smaller position in SPXU, which nets out to a long position in equities.

Warmth Is Wealth