Senior Market Strategist
Morning Market Update
*Philly Fed Manufacturing Index (yesterday) -24.3 vs -7.4 exp
*US Household debt climbed to $394B – the largest qq increase in 20yrs.
*GER PPI -1.0% vs -1.6% exp (Euro declined)
Stocks: Markets whipped around again yesterday following the release of the “hotter” PPI data. We had 3 approximate 1% reversals yesterday. Initially the SP500 sold off to 4100, before rallying to 4140, followed by another collapse into the close to 4097. These are not the traits of a “bull market” despite the SP500 starting off the year +6.5%. It seems as if risk is now beginning to build once again underneath markets, again this shouldn’t surprise you – we’ve noted the probabilities here every day since the stock rally began at the turn of 2023. Household debt continues to climb – so when we see conflicting data such as rising debt levels at the household level and strong retail sales on Tuesday (+3.0% mm), it doesn’t take a genius to understand what comes next. Despite the recent Retail Sales data, THE CONSUMER IS NOT IN GOOD SHAPE despite the narrative.
Yesterday we also heard from 2 hawkish members of the Fed, Cleveland’s Mester and St Louis’ Bullard – both are non-voting members this year. But whether they have a vote or not, the CME Fed Watch Tool is slowly pricing in 5.50% as the current peak Fed Funds rate. We noted this earlier in the week, and the market is just waking up to this reality. Whether the Fed achieves 5.50% or not, I’m not sure – I have my doubts based on where we see Q1’23 US GDP and our growth slowing outlook from here. With that said, there could be a “watershed” moment for the equity markets if the data decelerates more rapidly from here and the Fed remains tight over the near-term.
VIX: OPEX on Wed. created artificial vol suppression (alongside massive 0dte option volume on the SPY). That’s over with now, and we’re up 15% since the Wed expiration
Bonds: 2yr yields back to 4.69% and the 10yr to 3.89%, keeping the curve at a very chilly -89 bps inverted. Despite this, I’m still toying with the idea of bonds! Why? I do think the data continues to decel from here which likely creates that “knee jerk” reaction in the bond market back to the upside. Honestly, I think present levels of the 10yr and 2yr are likely at very good entry points from an investing point of view – but I don’t have the trend nor the Fed … yet. Once again, I don’t think this is the year to be fearful of the bond market. Again, trying to stay patient, just waiting on confirming evidence – we’re getting close in my opinion.
US Dollar +0.64% to 104.51 (I remember how much flack I caught for the long dollar call just last month, its ok though – after 20yrs I’m used to it).
I have 2 meetings today, so I’ll be spotty between 9:30 and 11:30am.
Everybody have a great weekend! I’ll be coaching K-2nd grade basketball this Saturday – something I never thought I’d enjoy so much. Go Bruins!
*Lower highs in stock indices – expect another bounce to sell into
*Yields still carving out higher highs in the range
*Gold – we could bounce over the near-term, but the negative divergence of price action and my OB/OS bothers me. Gold will likely be a good buy alongside bonds eventually.
*Oil- breaking the mid-point from last weeks 8% weekly rise – so long as Oil holds 74-73 is could be ok. I’d rather buy it above 83.50 on a break out. Staying away for now
|Market||Trend > 6 mo||Range Low||Range High||Momentum||OB/OS|