Mystique Turns To Miasma But The Bulls Are Happily Ever Aftering Like Its 1963: The Action For May 15, 2024
An America going crazy meets its perfect President in RFK Jr., but the Times not only hints at this dispiriting truth but the more discomfiting fact that polls suggest other 3rd party candidates take so much away from Biden that he polls at just 33%. While Trump likely fares much worse as America reaquaints with him in front of Courts the possibility of an electoral college stunner should put investors on their back foot. Yet the decline in retail sales and continued evidence of stalling disinflation has amped up the bulls to make new highs this morning, in sheer disregard for the worsening civil state of the nation. The S&P 500 likely pulls back over the near term, but unless a major intraday reversal takes hold this looks to be the summer of indifference that leads up to a standard issue selloff in the Autumn.
The bulls have control for the moment as several indicators reveal confidence in corporate earnings and the macro environment. These include:
Russell 2000 Technicals: Small stocks are breaking out and reflect surging confidence in economic growth.
Short-Term Treasury Rates: Short rates are falling, a sign of moderate inflation and a dovish Fed, potentially bullish for equities.
Pull bLong-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.
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.
Based on the action yesterday and overnight there are few risks the bulls need to climb over, 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.
Shanghai Composite Technicals: Chinese equities are trading poorly and that bodes ill for the global economy.
Geopolitical Issues: Developments around Eurasia are a clear negative for equities.
My current positions include 3M (MMM and its spinoff SOLV), Pfizer (PFE), a moderate position in UPRO and a larger position in SPXU, which nets out to a modest short position in equities.