Market Briefing For Monday, March 28

At least markets are not surprising; in continuing see-saw fashion.

This market appears 'balanced' on the surface; but beneath that veneer there is actually a bit of distribution. I know the mood on 'the Street' shuffles from a 'sucker rally' viewpoint to a 'S&P and Nasdaq wouldn't rally so much unless they're breaking out' take on matters.

The reality is it remains an 'indecision' with the moods and arguments barely if at all varying from my recent observations. I do think there's the 'possibility' of grinding-out higher levels; but felt market internals were running 'out of gas' in the absence of a Ukrainian/Russian 'ceasefire' or anything breaking Oil a bit. 

So far you don't have that with Oil; regardless of the USA/EU Natural Gas or other deals; or conversely India buying discounted Oil from Russia (price over principles is an argument we'll stay out of for now). No peace = firm Oil.

Nevertheless most of the action is really mega-funds driving mega-stocks, at the same time most small-cap stock languish and outside of the Indexes little enthusiasm exists. The big funds almost have no choice but to support their big-cap holdings and most skepticism is among the hedgers or individuals.

A couple weeks ago we called for the down-up reversal amid wide pessimism and became less enthusiastic as the rebound evolved into proving a technical point for some pundits; in hopes that would engender real broad participation in less prominent stocks. That has not occurred. Partially because big funds it seems 'know' they are 'fighting the Fed', even as they rationalize soft-landing arguments for how the Fed will thread the needle.

They might achieve that or more likely, the world will adjust it for the market over time; particularly if Oil has reason to retreat; and there's peace breaking out before stocks 'really' do. On the other hand (and there is another hand in this circus) escalation of the insanity (which even Russians are now pressing Putin to avoid) would do more than hit markets; while peace would disinflate things quickly, as would reopening trade routes (if that's even possible).

Russian Foreign Minister Lavrov called US / NATO actions of isolation a total war on Russia (what does he think they did to Ukraine?) and called on nations to join in economic development 'with' Russia; notably mentioning Brazil and India, not just China or a couple whack governments like Iran or Cuba. So we shall see in the fullness of time; but it will take lots of effort for Russia to rejoin the global financial system; probably only if it is done without Mr. Putin.

In sum: Between scorched-earth fighting in Ukraine or searing drought in our Southwest, it's a challenging year even without war, Covid, inflation; a newly aggressive Fed, and a bifurcated mega-cap heavily-laden market. While S&P and Nasdaq patterns reversed selling efforts, and perhaps the outcome will be in the direction it's heading; there is no unanimity of participation in what is still an energy-dominated (though that sector is extended) market.

We have a Fed-mandated economic slowdown pending; albeit not a certainty. The phrase of the era is 'WIN' for 'Whip Inflation Now' by this Fed. Regardless of the fact Oil was getting stretched into the 80's before Russian invaded into Ukraine proper (they were already in the border areas and Crimea of course) and the Washington-mandated wage increases; there is a tendency the most at the Fed to 'pretend' they really want to battle higher prices.

There's a school of thought that jobs and growth are so strong that everything can overcome inflationary pressures on the Fed to hike rates, and overlook all the historical correlations. It's possible, but not probable. Especially after 2-3 rate hikes; of which there are prior examples where 'fighting the Fed' worked a bit temporarily, but not for long as a Fed policy gained legs in any direction.

Here it really is confounded; since the broad market is virtually the inverse of the Senior Indexes. A lot of stocks are up a little; few up are a lot; but Indexes reflect primarily the jamming of money into already-expensive stocks. Many of those are funds buying overpriced stocks and writing 'calls' on them for some income; since a lot of institutions still have (like pension funds) impossibly big actuarial requirements they try to meet. One way to do that is writing options; and as I've often noted, 'covered' option writers are usually making money; as the vast majority don't even get called away. But when they do the sellers (the writers) have to be disciplined not to moan about lost upside opportunity. It's a strategy that I suspect is somewhat more prominent now than usual.

 

There's no need to 'save Putin's face'; but it may be essential to save face in a sense 'for Russia', lest Putin gain support to lash-out in more indescribable ways. I'd like to see 'peace break out', and not just because stocks would rise, though they would. That's likely the debate about Russia being at G20; which the US opposes. Host country Indonesia supports.

So the struggle goes on; most small stocks remain pummeled; most mega or big-caps are not well-priced; as the existential influences on markets matter.