Culture Wars Finally Find An Analogue On Wall Street As The Bears Win The Inflation Debate: The Action For April 10, 2024
The transgender issue keeps giving as The Times notes in its first column how Britain and Northern Europe are repelling the LGBTQ+ policies regarding converting children into the opposite sex. Such laws that remedy obvious violations of common sense fracture the West as ordinarily liberal people find themselves arguing basic facts with people they presumed were otherwise rational. And as this election witnesses further fracturing on the right with the bombshell prohibition on abortions in Arizona, the social climate is rife with discontent that mirrors the attitude of transsexuals toward themselves. Discontentment explains the surge in travel and the prices of everything from tickets to auto insurance that is keeping inflation well above reasonable levels, and finally causing Wall Street to mirror the confusion on Main Street. The S&P 500 is falling hard this morning but my sense is that liquidity is pulling the market higher, and the index likely rises over the near term.
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.
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.
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.
Tin Prices: Tin is broadly used across goods and industry and rising prices typically signal better growth prospects.
Based on the action yesterday and overnight there are some risks the bulls need to climb over, including:
S&P 500 Technicals: The top 40 in the S&P 500 look set to move the market lower.
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.
Economic Data: The latest economic data regarding inflation is worse than expected, a negative sign for equities
Geopolitical Issues: Developments around Eurasia are a clear negative for equities.
My current positions include 3M (MMM), Pfizer (PFE), a moderate position in UPRO and a smaller position in SPXU, which nets out to a modestly bullish position in equities.