Decency Takes Over The Spotlight For A Few Minutes, But The Political And Financial Writing Is On The Wall: The Action For February 21, 2024
The Times offers a farrago of bright spots against the global surge of right-wing autocrats this morning, coming both from obvious sources and bewildering ones. That Hollywood is trying to help Biden’s son clear up his various messes is easy to believe but that the Supreme Court has eschewed an opportunity to strike down affirmative action in education is one for legal scholars to explicate. The clearest reason for the latter is that the right wing has never offered coherent answers to inequality, and this Court hasn’t the intellectual skills to start offering one now. But despite the Time’s efforts it’s clear where the major stories of the days point and that’s toward battle-hungry right wing autocrats thirsting to draw blood. Ignoring both reality and humility is par for the course for the right wing in every nation, and disconcertingly true for the bulls across global markets as well. While the markets are consolidating ahead of Nvidia’s earnings report this afternoon, it’s likely the party of irrational exuberance retakes control as Nvidia gives its customary optimistic take and that moves the S&P 500 to new highs by the close of this week or early next.
The bears have control for the moment but several indicators reveal confidence in corporate earnings and the macro environment that likely shift power to bulls by tomorrow. 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.
Shanghai Composite Technicals: Chinese equities are trading well and that bodes well for the global economy.
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 added modestly to my position in the leveraged ETF UPRO, consequently my current positions include 3M (MMM), Pfizer (PFE), a large position in UPRO and a smaller position in SPXU, which nets out to a long position in equities