The Bulls Can Help Their Cause By Bidding Up The Times Instead Of Meta: The Action For May 16, 2024
MSNBC’s attempt to maintain a big tent while living under a big tent at NBC within yet another big tent inside Comcast delights the Times this morning, particularly as it lands adjacent to yet another article on the filthy aspects of social media. The Times has survived the free for all media environment since the 1990s while largely ceding the tabloid mentality to others like the leftist personalities at MSNBC. But this commitment may not last as New York City encounters social and demographic problems while the younger generation clicks on information over news, delivered by the likes of TikTok and Facebook. Key for the paper and for the health of the nation’s civic and cultural life is if NYT shares can break above $50 this summer, validating projections of strong profit growth and mild revenue growth. The complacency of the bulls as the weather heats up makes that possible, a rare example of bullish enthusiasm redounding to the health of the nation.
The bulls have control for the moment as numerous indicators reveal confidence in corporate earnings and the macro environment. These include:
Volatility Risk Premium: The VRP signals significant upside in the near term as the VIX has declined relative to actual volatility.
Russell 2000 Technicals: Small stocks are breaking out and reflect surging confidence in economic growth.
MOVE Index Of Bond Volatility: Fixed income volatility is steady and implies modest inflation expectations and stable interest rates to come, potentially bullish for equities and the global economy.
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.
High Yield Credit Spreads: The cost of borrowing is falling for lower-rated firms compared to their AAA siblings, a confident signal of an improving economy.
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 $.
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.
Liquidity Metrics: Measures of money flow across the globe are trending upwards lately, which helps equities.
Hardly anything stands in the way of the bulls outside of hubris, based on the action yesterday and overnight. The only risks extant include:
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.
Geopolitical Issues: Developments around Eurasia are a clear negative for equities.
This morning I added to my position in UPRO, consequently my current positions include 3M (MMM and its spinoff SOLV), Pfizer (PFE), a moderate position in UPRO and a similar position in SPXU, which nets out to a neutral position in equities.