Biden Backpedals On His Values And Hopes All Eyes Stay On His Felonious Competitor: The Action For June 5, 2024
The Times leads off with Biden’s wrenching reversal of Obama’s immigration posture and goes easy, choosing not to delve too deeply into yet another example of incoherent policymaking by use of effective inconsistency. Not only is Biden pulling back from a key value for the Democratic Party but harming his anti-inflation message, which to a large degree relies on growing labor participation to keep real wages in line with productivity rather than with an overconsumptive consumer. Such incoherence is making this election closer than it need be and raising the prospect of a Trump election which will set back global trade and American hegemony for the foreseeable future. The markets are discounting such foresight in favor of putting cash to work, and such myopia is setting us up for another major correction this summer.
The bears are likely to regain control tomorrow if not by the close, but for now the bulls are trading on several indicators that reveal confidence in 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 higher.
Volatility Risk Premium: The VRP signals significant upside in the near term as the VIX has declined relative to actual volatility.
WTI Crude Prices: Oil and by extension gasoline is getting cheaper and that in itself helps consumers and the global economy.
Liquidity Metrics: Measures of money flow across the globe are trending upwards lately, which helps equities.
But based on the action yesterday and overnight there are a myriad risks the bulls need to climb over, including:
Russell 2000 Technicals: Small stocks are breaking down and reflect declining confidence in economic growth.
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.
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.
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 $.
Zinc Prices: Few commodities are as broadly important as zinc, and falling prices for zinc signal that global demand is weak, which is usually bad for equities.
Aluminum Prices: Aluminium is a critical input for consumer and industrial goods and falling prices signal weak global demand, which is usually bad for equities.
Copper Prices: Copper makes the energy transition happen but is also a barometer of global growth, and falling prices signal growth may be worse than expected.
Tin Prices: Tin is broadly used across goods and industry and falling prices typically signal worsening growth prospects.
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 smaller position in SPXU, which nets out to a modestly bullish position in equities.