The Bulls Can’t Be Bothered By Death And Destruction In Front Of A Three-Day Weekend: The Action For February 16, 2024

The death of a global hero of decency casts a pall on the world already dealing with the craven fealty of the GOP to the orders of Donald Trump. But as the fate of Alexei Navalny or even the nation of Ukraine has little direct import on the US economy, at least in the short term, the bulls are off to the races for new all-time highs in the market. In front of a 3-day weekend this evidence of optimism can’t be understated, and the S&P 500 likely rises over the near term, dependent now on how Nvidia conducts its earnings report next Wednesday.

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.

  • 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.

  • 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:

  • 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 Eurasia are a clear negative for equities.

Yesterday I pared my holdings in the leveraged ETF UPRO, consequently my current positions include 3M (MMM), Pfizer (PFE), a smaller but still large position in UPRO and a smaller position in SPXU, which nets out to a long position in equities.

Warmth Is Wealth