Morning Note: Largesse

Stocks are off to another nice start this morning, although in concentrated fashion. 

While the S&P 500 is up 1.4% as I type, roughly 40% of its member companies are actually in the red. Utilities and consumer staples are heading lower; industrials and healthcare are relative laggards to start the day as well.

The troubling events of yesterday were/are zero needle-movers for stocks. Stocks presently are all about government largesse, and expectations are high on that front going forward.

Indeed, on a morning when initial jobless claims came in at a hair under 800k, on the heels of the release of Fed minutes that essentially confirmed that the economy remains in a world of hurt, the fact that equity markets continue their stretch into all time high territory is, well, not a comfortable feel if you’ve been round the block a few times…

Of course it’s the latter — that is, it’s the Fed’s promise to print money to seemingly the end of time — along with the promised fiscal spending largesse, that has a little more than half of S&P 500 companies trading higher as I type.

Asian equities rallied overnight, with 14 of the 16 markets we track closing in the green.

Europe’s in a good mood as well, with 17 of the 19 bourses we follow trading higher so far this morning.

U.S. major averages, as concentrated as this morning’s action (so far) is, are nicely higher to start the day: Dow up 284 points (0.92%), SP500 up 1.48%, Nasdaq up 2.13%, Russell 2000 up 1.60%.

The VIX (SP500 implied volatility) is down 9.29%. VXN (Nasdaq i.v.) is down 8.10%.

Oil futures are up 0.06%, gold’s down 0.29%, silver’s down 0.87%, copper futures are up 1.25% and the ag complex is down 0.06%.

The 10-year treasury is down (yield up) and the dollar is up a big 0.46%.

Held back by the laggards mentioned above, along with Asia-Pac equities, gold and silver, our core mix is up 0.26% to start the day.

In our year-end letter Part Five I made the case for a continued weak dollar going forward, however, I also suggested that that’s a very crowded trade, and that technically-speaking a bounce was in the offing:

Well, clearly, amid rising interest rates and I’m certain no small amount of short-covering, we’re seeing quite the dollar rally this morning (0.46% is a not-small move). And while gold and silver, for example, are acting accordingly, stocks are bucking their negative correlation to the dollar quite successfully so far this morning… 

I.e., this morning’s bucking notwithstanding, a stronger dollar simply will not work for stocks going forward (in this environment)… 

In that myopia is the affliction of the day (which is a distressing statement as it’s a check-the-box-factor for bubbly markets), traders clearly see only stimulus as far as their eyes can see. 

Ironically, in that the stimulus will come via massive budget deficits and fed-printing, well, that should pose a major headwind for the dollar going forward… 

So maybe those myopic traders are onto something after all…

Have a nice day!
Marty

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