The Bulls Sigh With Relief That Neither The Fed Nor The Arizona GOP Offered Any Surprises: The Action For May 2, 2024
Below macroeconomic and geopolitical stories the Times covers the Arizona fight over abortion rights and notes with barely concealed satisfaction that two GOP lawmakers crossed the aisle to repeal the 1864 ban. Missing from the analysis is why Conservatives face precisely the same problem as leftists in failing to agree on anything other than their disdain for the other side. There has never been an era of good feelings among conservatives since William Mckinley’s soaring victory that capped the Gilded Age, The reason is conservatives can’t reconcile the liberating nature of capitalism with the anti-liberal perspective of tradition. To agree on maintaining traditions is tantamount to setting up permanent hierarchies to guard the nation’s culture, and America was founded on an aversion to permanent hierarchies. To be conservative is to be frequently at odds with American values, which are dominated by the liberating effect of capitalism on ideals and the morality that ties them together. Like many I foresee the conservatives missing a golden opportunity to unseat a Democratic incumbent come November, as Trump manifests the contradictions of modern conservatives even better than Reagan.
A continuation of Biden means a continuation of inflationary policies, a fact underscored in yesterday’s Fed press conference where the persistence of inflation was the dominating topic. Interest rates are down today and consequently the bulls have control for the moment, but I believe rates are headed back up and new lows are in store.
Girding the bulls today are several indicators revealing confidence in corporate earnings and the macro environment. These include:
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.
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.
WTI Crude Prices: Oil and by extension gasoline is getting cheaper and that in itself helps consumers and the global economy.
But 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.
Liquidity Metrics: Measures of money flow across the globe are trending downwards lately, which hurts equities.
Geopolitical Issues: Developments around Eurasia are a clear negative for equities.
My current positions include 3M (MMM and its spinoff SOLV), Pfizer (PFE), and a moderate position in SPXU, which nets out to a moderate short position in equities.