Bullishness Displaces A Forgotten War And Forgotten Sensibility: The Action For February 6, 2024
The Times reminds us this morning of the volatile political and military battlefield that is Ukraine and how the GOP has largely forgotten its old enemy Russia and replaced it with immigrants and other deplorables. By the same token the bulls have forgotten the fundamentals of value investing that underwrote the great bull markets up to the Covid pandemic, and both sets of amnesia root back to a desire to forget the past and seek simple values that get us through the day. Neither are sustainable and both will redound to macroeconomic trouble down the road. For now, however, goldilocks is the operative economic theme and the S&P 500 likely rises after today’s modest retrenchment toward new highs around 4990.
The bears have control for the moment as several indicators reveal pessimism on corporate earnings and the macro environment. These include:
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.
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.
Developed Market FOREX / $US: The dollar is getting stronger against most major currencies (€, ¥ and Renmimbi) and that’s usually bad for global 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.
Tin Prices: Tin is broadly used across goods and industry and falling prices typically signal worsening growth prospects.
Geopolitical Issues: Developments across Eurasia are a clear negative for equities.
I expect the bulls to take control by tomorrow as the underlying financial factors point to exuberance rather than pessimism, including:
S&P 500 Technicals: The top 40 in the S&P 500 look set to move the market higher.
Liquidity Metrics: Measures of money flow across the globe are trending upwards lately, which helps 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.