Here’s a snippet from last night’s entry to our internal market log:
“The general narrative is that inflation has peaked… Fed governor Waller stated today that while a 50 bp Fed funds hike is his preference for the May meeting, he is “forecasting that this is pretty much the peak (for inflation) and it’s going to start coming down.” Although he added “but it doesn’t relieve us of our job to remove accommodation — to get inflation down.”
The overall gist of his comments was — his inflation peaking forecasting notwithstanding — that the Fed is absolutely going to do what it takes to quell demand within the economy and, in the process, do a number on inflation… Of course without entirely killing the party (read causing recession). Well, we’ll see…
Clearly, the equity market (players in the aggregate) still doubts the Fed’s stated resolve. I.e. The extent of the tightening they’re threatening is simply not fully discounted in stock prices.
Bonds, on the other hand, are taking a more meaningful hit; the Bloomberg Long Treasury Index is down over 16% year-to-date… And, I should add that long duration equities (read tech) are taking nearly twice the hit vs the S&P 500; the Nasdaq Comp is down 14% ytd…”
Our structurally-higher inflation thesis notwithstanding, I actually sympathize with the notion that inflation’s rate of change is near peaking.
However, one of the very best macro thinkers out there doesn’t. Although we’re on the same page with regard to the “equity bulls'” misguided sanguinity:
Asian equities leaned green overnight, with 10 of the 16 markets we track closing higher.
Europe’s catching a bid this morning, with 15 of the 19 bourses we follow trading higher, as I type.
US stocks are (save for tech) positive to start the session: Dow up 251 points (0.74%), SP500 up 0.27%, SP500 Equal Weight up 0.60%, Nasdaq 100 down 0.17%, Nasdaq Comp down 0.13%, Russell 2000 up 0.31%.
Oil futures are down 1.11%, gold’s down 0.29%, silver’s down 1.05%, copper futures are down 0.51% and the ag complex (DBA) is down 0.49%.
The 10-year treasury is down (yield up) and the dollar is up 0.46%.
Among our 39 core positions (excluding cash and short-term bond ETF), 26 — led by carbon credits, Albemarle, solar stocks, aerospace/defense stocks (new position) and base metals miners– are in the green so far this morning. The losers are being led lower by South Korean equities, MP Materials, Silver, semiconductor stocks and Latin American equities.
“Since corporate credit and equity are linked, Central Banks have effectively acted as a backstop on the S&P 500 and other large-cap equity indices.”
Yep, and that’s what the equity bulls are counting on going forward… Although it’s certainly not what central banks are promising these days…
Have a great day!
Marty