Hungry For Taxpayer Funds Hungary Shows Why Investors Put Politics On The Back Burner And Focus On Riding The Bull Market: The Action For March 21, 2024
A rare bit of geopolitical humor occupies prime real estate on the Times front page this morning, highlighting the inadequacy of the EU to form a bloc of liberalism to confront its Eurasian neighbors. Hungary’s noxious use of European taxpayer funds for its right-wing agenda will likely fade into information oblivion, but it offers a key insight into why the American bull market has proceeded unabated for 5 months now. Investors see current geopolitics as more of the same, giving them leeway to consider how long liquidity can be sustained to keep money flowing into stocks. As long as central banks like the Fed see politics as a zero-sum game that never changes, they will consider offering a put option to investors in case national confidence stumbles. The bulls take the optimistic side of that question but if they had been listening carefully to Jerome Powell’s news conference yesterday they would have realized global liquidity will decrease substantially this year. The S&P 500 likely rises over the near term but as investors digest Powell’s words a major correction will set off.
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.
Russell 2000 Technicals: Small stocks are breaking out and reflect surging confidence in economic growth.
MOVE I Inndex Of Bond Volatility: Fixed income volatility is steady and implies modest inflation expectations and stable interest rates to come, potentially bullish for equities and the global economy.
Aluminum Prices: Aluminium is a critical input for consumer and industrial goods and rising prices signal better than expected global demand, which is usually good for equities.
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.
Based on the action yesterday and overnight there are few risks the bulls have any interest in pondering, 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.
My current positions include 3M (MMM), Pfizer (PFE), a large position in UPRO and a smaller position in SPXU, which nets out to a bullish position in equities.