Market Briefing For Monday, April 11

Supremacy is tough to maintain - whether it be S&P now; or the Russian effort to delude themselves into believing they can be a revived Imperial power.

For the market, it's a two-faced scenario we've described, between mega-cap and smaller stocks; most of which corrected over the past year or so. When it come to Ukraine versus the Russian onslaught, it's reminiscent of something Winston Churchill said when colleagues pressed him to make peace with Hitler (who wanted a U.S. capitulation), just as Germany was threatening to unleash the Luftwaffe on Britain. I think this quote applies to the current war:

“Nations that go down fighting rise again, but those who surrender tamely are finished.”

- Winston Churchill, November 1942

Of course S&P 'control' by money managers maintaining a facade of strength for over a year gives an illusion of strength, while selling dominated primarily under-the-radar, as those big stocks masked the real ongoing distribution. It's a variation of 'going down fighting' in the view of the doctrinaire bears; while of course they ignore a reality that so many stocks already got defeated; hence a question might be once (or if) mega-caps crater; it's time to buy not sell.

That's actually an argument 'why' this market isn't quite on the precipice of the kind of plunge people constantly forecast; because internally for a majority of stocks, it already occurred. That doesn't mean you can't get more; but likely it couldn't happen with the kind of unanimity of liquidity destruction seen in prior historical collapses. Might in some big-caps; lesser in already beaten-up's.

Supply-chains are starting to clear a bit; but Covid in China remains troubling. Covid in the US is likely not on the ascent; except among political Washington establishment members, ironically enough. They are trying to pretend all has returned to normal (hence bipartisan masklessness); which is problematic or at least risky, with regard to anyone not vaccinated 'and' having had Covid.

The persistence of inflation does relate to the duration of the 'war'; while Oil & Gas demand will be solid, even if 'peace breaks out', which it hasn't as of yet. If there is no peace agreement between Russia and Ukraine; exhaustion may be how this gets resolved, since families of Russian troops lost in battle really will be comprehended by citizens there; and popular frustration might surface in a far-more dramatic way, since the Kremlin can't suppress truth forever. I'm aware that the propaganda mills in Moscow are running overtime fabricating a lot of fiction; even alleging the missile that hit the train station was Ukrainian, not Russian. They show the serial number; which was from a booster stage of the missile, which typically falls near the target; so it's not faked. But. Much of Russia's weaponry, as I've noted before, was made in Ukraine and shipped to Russia.

In sum: lots of hurdles for the stock market to get through. Higher rates are in the mix of course; and a more hawkish tilt is ongoing. However the extent to which it can 'derail' what some think is a 'bull run' is almost comical; since we have a bifurcated market as often described, and quite prolonged already.

But all this is more dependent on China's battle with Covid; even more so with regard to what happens to monetary policy, than influences of Russia's war in Ukraine. For the USA; stagflation has actually been around in some sectors already; but again things won't necessarily be as slow as some speculate. In fact, once the supply-chain issues are resolved; inflation drops and hiring will go up, along with increased Auto and Semiconductor builds, and so on. That brings into doubt some 'assumptions' about depth of recession and so on.

There's obviously a 'high bar' to S&P surmounting this area; but the longer it hovers in the vicinity of the 200-Day Moving Average, the better the prospects of actually getting through it on a Closing price basis, which it hasn't so far.

Many of the drum-beating bearish technicians fail to note the bifurcation; and are just looking at interest rate trends (higher of course); and monetary policy; generally failing to discount how much previous internals anticipated this Fed direction; which was announced months ago (belated as it is). Fluid backdrop.

So yes the rallies can fail of course, but absent another dramatic 'black swan' or existential event; it doesn't equate to S&P necessarily having to collapse or 'catch-down' with where most stocks are. It might; but also realize that a 'white flag' event (like Russia finding a peaceful way-out); long-shot or not, matters a lot when one considers what could change the macro dynamics in-flux.

Key among those would be Oil prices; take WTI back into the lower 80's on a peace-deal, and you take S&P up above the 200-Day Moving Average, even if it's an unsustainable move. This all remains rocky and we're about to get a string of 'earnings reports' with probable mediocre guidance by many big-caps just incidentally .. suggesting their valuation levels are often quite excessive.

Bottom line: The indecision pattern technically reflected by S&P these last few days persists. Many small-caps have eroded from an absence-of-bids more so than any persistent selling; typically on lighter-volume contraction.