Market Briefing For Monday, Sept. 23

Potential risks are evident - for the 'known unknowns' discussed on a continuing basis; and more recently as people try assessing a meaning from 'repo' liquidity injections. Perhaps the Fed is being accommodative, beyond historical norms, by indicating they'll continue the practice until October 10 (at least). This sort of ties-into the general support of TINA, in an indirect way (the 'There Is No Alternative' to equities) for now.

In essence: we have valuation challenges for tech; lots of big techs are either failing to provide leadership as previously; benefiting merely in a sense from buybacks (an artificial way of embellishing their earnings of course, and also indirect executive compensation). Plus fairly evident to everyone, we're approaching an often-treacherous October, with no China deal (though despite the cancellations this past week; they're still on-the-docket for October; with jitters about how that works out).  

 

On top of it all we've got a military challenge that reinforces my view of President Trump 'preferring' to keep us out of wars and disengage; but at the same time he can't be seen as Chamberlinesque, and must take some action on-behalf of global Oil, so he is. The Iranians are warning a 'partial retaliation' brings all-out war; well if they behave that way then that theocratic regime might might itself eventually in trouble. One thing for sure, they are feeling the economic pressures of the sanctions. For a moment, after noting near-term risks, lets return to the big picture.   

We can concur with the NY Fed that there's a danger with allowing this expansion (again indirectly) of leverage; as it becomes viewed as sort of a new 'customary' approach; which probably increases pain later-on after it all eases. But perhaps they hope timing expansion coincides at least closely to a possible forthcoming 'China Trade Deal', which allows an offset to retrenchment that might otherwise occur. However, as just the last two days show; fail a deal, and the markets are not pleased.  

I'm not convinced the Fed prevents retrenchment by extra expansion. In fact, beyond what may be justified relief rally in-event of substantive 'Deals'; that might also firm interest rates (in the real world, not the Fed's stand for now), as business will have better visibility on 'CapEx' planning and other areas that would benefit from a stabilized outlook.   

But again, with the slightly convoluted prospects, having a deal indeed would return a degree of 'normalcy' (with limits to globalism merely as it drains business from America) and that provides a modicum of calm to multinational businesses especially; and limits (or reverses) tariffs too.  

All of the concerns, even the geopolitical concerns regarding Iran, and a Saudi Arabia that may want to retaliate but fears actually not being at this point particularly successful if they do (that's likely why they have pressing the United States for support beyond enormous weapon and training help that so far hasn't helped); and that's in an Arabia that has traditionally been 'loathe' to accept troops from the West.... media has forgotten that, and the antagonisms among devout Muslims. All these concerns are in-motion; and risk dynamics are barely grasped by any.    

In sum: The 'fluidity' of the prospects and known unknowns coincides it needs to be noted, with a few technical indicators reflecting both sort of a tedium at the market's tenacity; or suggest some vulnerability. It's a topic I addressed just a day or two ago with the ARMS / TRIN as just one indicator of possible short-term vulnerability. It actually coincides a bit with my own earlier warnings of a period of risk anyway; relating to a few other aspects, including absurd big-cap valuation levels.  

None of it has to be as dramatic as last year's Fall decline; nor does it deny upside prospects that 'might' emerge from a Fall low or next year; while worthwhile reiterating: risk exceeds potential as it has for awhile. 

The embrace of dramatically higher S&P goals recently, by a handful of technicians, who generally are just reflecting on continuation patterns if we indeed get a breakout, actually enhance my short-term concerns (to wit you can get a fake-out breakout). These are often the same type of approaches to getting bullish on strength and bearish on weakness; in essence the opposite of common sense and market experience too. It is because I hear a couple loud pundits extolling buying strong stocks, without pointing-out the virtue of buying dips within a long-term trend, that I reiterate this again. This market is choppy enough not to reward a (seemingly 'comfortable') approach of chasing upside strength.    

We also have risks that evolve simply because we're past a Quadruple Expiration, which is sort of like a re-balancing, and may precede more unwinding to start the new trading week. Overall though, we aren't yet on the precipice of a dramatic market swoon; barring exogenous event risk, and there is certainly some of that. So we remain defensive as I'd hoped the market would hold together until my return from Berlin; but I didn't expect it very long beyond that; and of course is coincidental but also has a relationship not just to seasonality, but market conditions. 

 

Bottom line: there are short-term concerns; and some long-term ones as I've tried to outline and differentiate. There are political risks too if it is perceived certain candidacies rise to the fore ahead of Elections. All that has (as was the case in 2016) nothing to do with personal views at all; but rather how 'Mr. Market' will react to backdrop probabilities (or in this era perhaps we should say 'Ms. Market').  

Additionally there's unfolding of oligopoly aspects of antitrust, relating to everything from corporate governance approaches not conducive to structural modifications, at the same time it invites antitrust scrutiny for government or regulators. I hasten to point-out 'forced' (or voluntary) breakups are often not so negative as investors fear; as sometimes parts are worth more than the former whole. So it's short-term jitters but some of that might not be a long-term negative for certain stocks. It depends, as there are situations where size does matter and benefits a broad cross-section; and others where it inhibits entrepreneurs.  

  

So, while I've forewarned that risks are rising as I'm back from Europe, and the market remains extended at overbought levels, there remains the prospect of a deal with China; maybe even avoidance of overt war in the Persian Gulf (that's a big toss-up because Iran's actions warrant heavy responses); and the efforts by monetary authorities to 'cushion' risks in ways that they customarily refrain from doing.

In a sense they risk being a part of the building excess, and thus when rates shift dramatically as they ultimately will regardless of monetary or elitist assumptions that they can fine-tune matters, it gets problematic. I think eventually this will even set-the-stage for broader real estate hits, and other concerns, that go beyond the (tax-stimulated) exodus from a few very pricey centers, like New York and San Francisco.  

(And there are some novel situations too; like some of the more-elderly communities here in Florida, where prices are soft because millennials inheriting properties, are reportedly 'liquidating' them, to maintain their youthful lifestyles. I will counter that a bit; because some millennials are truly embracing 'real concerns' about rising tides and global warming; hence they really don't see coastal properties as viable for retiring; so they get rid of them while it's feasible to cash-out in stronger property markets. Evidence inland areas of Florida, where prices are rising. At the same time, shame on those 'educators' denying free speech; such as in Hollywood Florida where the Broward County school board didn't compel high schools to allow students to join the National protests on climate change. In this case; not even a scientific or political argument about global warming; but rather a student's rights of expression. This is a story that should have had more National coverage but didn't.)  

Conclusion: expect key decisions about Iran and Straits of Hormuz oil shipping protections, possibly over the weekend. Watch for some fade in the S&P following this Quadruple Expiration, but then intraweek rally revivals would be probable, unless one of the exogenous issues rises to the fore, or we learn more about the legal wrangling around Ukraine, which seems to be what the 'whistle-blower' issue's about Giuliani's trip over there (possibly to gather damaging info on Joe Biden some say).

Worry about a double-top; breakout necessity; Germany moving more to aid the EV boom (it matters but isn't a massive fiscal stimulant yet); the Middle East; persistence of buybacks; all of it persists. I don't view this as a huge impediment to move higher 'eventually'; but risks of a debt trap and a sort of equity trap do exist, with respect to near-term risks of reversals. We had a bit of that Friday; anticipate more.