The Global Economy Feels Resilient Even As Global Conditions Feel Awful: The Action For March 1, 2024
Horrible news out of the Middle East as reported by the Times sets the stage for a weekend of vitriol and anger for most but little less than sweet sailing for the bulls. Yesterday’s disinflationary data combined with labor market strength means the economy is unlikely to slow in the near term, as consumers get the benefit of a return to normalcy and consequently spend their way out of frustration. Not only do geopolitics not matter to the markets but the S&P 500 rose sharply despite the implication of higher interest rates for longer, revealing that investors would like to drive the equity risk premium to zero as soon as possible. Consequently the market likely rises over the near term, with a major correction still a geopolitical event away.
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.
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.
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:
WTI Crude Prices: Oil and by extension gasoline is getting more expensive and that in itself hurts consumers and the global economy.
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.
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.