The Best Of Biden Will Bring Out The Worst In Trump & Sadly The Markets As Well: The Action For March 8, 2024
Biden’s fiery rhetoric last night gives the Times something to talk about this morning and raises the discomfiting spectre of Trump doubling down on revenge and lies to amp up his base. While that likely helps solidify swing voters in favor of Biden, it also lowers the odds they vote down-ballot for the GOP. For the bulls the ideal scenario is a divided government like the second Clinton term, where the mood stayed neutral and the GOP legislature forced the Democratic President into tax cuts. But if the GOP stands by their man as he recedes into darkness then the bulls will have to discount the alarming possibility of a Democratic-dominated government that amps up the deficit and raises taxes. For now however the bulls are simply enjoying the goldilocks scenario depicted in the latest jobs data, and are pitched to take the S&P 500 to a new record close.
The bulls have control for the moment as several indicators reveal confidence in corporate earnings and the macro environment. These include:
Liquidity Metrics: Measures of money flow across the globe are trending upwards lately, which helps equities.
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.
Inflation Expectations: Investors expect lower inflation over the coming years, implying lower interest rates to come, potentially bullish for equities.
Short-Term Treasury Rates: Short rates are falling, a sign of moderate inflation and a dovish Fed, 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 employment in both services and manufacturing is better than expected, a positive sign for equities
Based on the action yesterday and overnight the only risk manifesting for the bulls is the unending geopolitical horrorshow across Eurasia, which is unlikely to fell the bulls unless something unforeseen and dramatic happens.
Yesterday I sold the small additional position in the levered ETF UPRO that I had bought earlier in the week, consequently my current positions include 3M (MMM), Pfizer (PFE), a slightly smaller but still large position in UPRO and a smaller position in SPXU, which nets out to a long position in equities.