False Narratives On Wall Street And On The Sports Field Converge As Investors Head As Fast As Possible For The Weekend: The Action For April 12, 2024
The Times notes the prevalence of bad behavior in sports this morning with adjacent stories about OJ Simpson and the fraud committed by the interpreter to Shohei Ohtami against the baseball phenomenon. Both stories implicitly remark on the growth of decadence in sports, where fame-seeking and betting have tarnished the virtues traditionally associated with athletics. So too the bulls have tarnished the image of the financial markets as truthful measures of national confidence, with investment professionals privately grumbling about poor national dynamics while publicly proclaiming American economic strength. The fraudulent mindset engulfing America as Trump makes a comeback bid will likely hit a peak soon, with both the dismissal of Trump from the political stage and a bear market that eviscerates Biden’s claims of serving Americans with absurd deficits and protectionism.
A sense of unease over the latest economic and corporate data infuses the markets this morning, as the goldliocks narrative withers away in the face of raw numerical facts. The bears have control for the moment as several indicators reveal pessimism on 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 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.
MOVE Index Of Bond Volatility: Fixed income volatility is rising and implies higher inflation expectations and higher interest rates to come, potentially bearish for equities and the global economy.
Inflation Expectations: Investors expect rising inflation over the coming years, implying higher interest rates to come, potentially bearish for equities.
Developed Market FOREX / $US: The dollar is getting stronger against most major currencies (€, ¥ and Renmimbi) and that’s usually bad for global growth.
Emerging Market FOREX / $US: Nations like India, South Korea, the Philippines and Mexico are getting weaker against the dollar, and that’s bad for global growth since many key imports are priced in $.
Economic Data: The latest data regarding speculative trading in commodities is worse than expected, a negative sign for equities
Geopolitical Issues: Developments around Eurasia are a clear negative for equities.
Based on the action yesterday and overnight there are several factors that likely flip the markets around next week, including:
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.
Liquidity Metrics: Measures of money flow across the globe are trending upwards lately, which helps 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.