Even The GOP’s Idiocy Can’t Stop The Bulls: The Action For February 7, 2024
The Times may relish the multiple defeats plaguing the GOP this morning but the rest of the front page points to the harsh domestic and geopolitical realities that pass unconsidered by the bulls on Wall Street. Only jejune articles below the fold about basketball and country music stars leaven the gruesome news and this mirrors the sentiments of the bulls, who see islands of good news among the megacaps as dominating an ocean of lackluster news from the balance of corporate America. And with prospects for tax cuts fading as Trumpism loses its luster the bulls lose a minor brick in their wall of optimism, but this matters little since the real foundation is Biden’s stimulus, which channels public debt into corporate coffers and drives the goldilocks moment the bulls are enjoying. Consequently the S&P 500 likely rises over the near term, driven by momentum and little else.
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.
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.
Zinc Prices: Few commodities are as broadly important as zinc, and falling prices for zinc signal that global demand is weak, which is usually bad for equities.
Geopolitical Issues: Developments around Eurasia are a clear negative for 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.