The Link Between Terror And Inflation Was Never So Disheartening, But The Bulls And The Media Remain Cosseted In Their Own Echo Chamber: The Action For March 7, 2024

The Times offers a narrow account of the one true news item this morning and ignores altogether its import for domestic affairs, namely the intransigence of Hamas in the face of unrestrained Israeli violence. That Hamas is guilty of ongoing sexual crimes and perversion of global aid efforts while holding hostages are key reasons Biden remains committed to supporting Israel, resulting in rising oil and gasoline prices and a potential fallout in the equity market. Yet like the Times the bulls are ignoring the financial impact and continuing to push the markets higher, as the S&P 500 makes a new high today and looks set to rise higher if tomorrow’s jobs report comes in line with expectations.

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.

  • Inflation Expectations: Investors expect lower inflation over the coming years, implying lower interest rates to come, potentially bullish for equities.

  • Long-Term Treasury Rates: Long rates are falling and that will improve the attractiveness of equities while boosting the housing and auto industries to the benefit of 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.

  • Developed Market FOREX / $US: The dollar is getting weaker against most major currencies (€, ¥ and Renmimbi) and that’s good for global growth.

  • Emerging Market FOREX / $US: Nations like India, South Korea, the Philippines and Mexico are getting stronger against the dollar, and that’s good for global growth since many key imports are priced in $.

  • Zinc Prices: Few commodities are as broadly important as zinc, and rising prices for zinc 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.

  • Tin Prices: Tin is broadly used across goods and industry and rising prices typically signal better growth prospects.

  • Economic Data: The latest economic data regarding productivity is better than expected, a positive sign for equities

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

As noted above, 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.

  • 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.

Warmth Is Wealth