What’s Bad For The Russian Bear Is Of No Consequence To Global Bulls: The Action For February 28, 2024

European integration hits a predictable snag as the Times reports this morning of Emmanuel Macron’s disagreement with fellow NATO members over the need to stop Russia at all costs in the name of decency and principle. The bulls dream of a productivity revolution fueling growth around the world and redounding to the megacaps’ income statements, but pesky geopolitics makes it more likely that firms tread carefully in their AI investments while nation-states try to stop the technology from giving Russia an edge. For now however the problems of people around Europe don‘t add up to much in the market’s consciousness, and the S&P 500 likely rallies tomorrow after today’s drop in front of the important inflation report tomorrow morning.

The bears have control for the moment as several indicators reveal pessimism on the macro environment. These include:

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

  • Short-Term Treasury Rates: Short rates are rising, a portent of higher inflation and/or Fed rate hikes, potentially bearish for equities.

  • Long-Term Treasury Rates: Long rates are rising and that will reduce the attraction of equities while cooling the housing and auto industries to the detriment of economic growth.

  • Copper Prices: Copper makes the energy transition happen but is also a barometer of global growth, and falling prices signal growth may be worse than expected.

  • Geopolitical Issues: Developments around Eurasia are a clear negative for equities.

But based on the action yesterday and overnight there are several factors that remain highly bullish and likely flip the markets around by tomorrow, including:

  • 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.

  • Liquidity Metrics: Measures of money flow across the globe are trending upwards lately, which helps equities.

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.

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