Market Briefing For Tuesday, Jan. 18

Recovery rollover is the issue; and if the economy rolls-over the Fed will be inclined to keel over, despite probabilities of at least a token March rate hike. I know it's notable that the small-mid caps generally were pushed-over already. And this remains a tumultuous time in virtually every aspect one considers.

It may also be that the prospect of Fed hikes is 'already' discounted by market action under-belt; plus this collision: emerging from easy monetary policies or fiscal stimulus, against pent-up demand improving earnings in many business models as we get past Covid (presuming we do of course) playing a role too.

None of this presupposes the Covid progression globally; especially in China; not just because of the looming Olympics, but impinging further on production as well as shipping; hence worsening supply issues and yes inflation. That's a clear situation the Fed can't rectify; so let's hope they don't try to.

Some economists speculated ongoing stronger economic demand will offset pressures from Fed rate hikes; that's only possible to an extent. With regard to large cap stocks I would not embrace the idea of 'fighting the Fed' thusly; which is what analysts making that comment are doing. But it will be true in business or technologies which are not key to driving the Indexes.

All this is confounding and it should be; because the Fed is confused too. The internals of a churning market must be paid attention to; as psychologically it is extremely unlikely that enthusiasm will be robust while the S&P tanks, as a for-instance. Heck; just look at the past few weeks; where already-broken and pummeled small stocks got eroded further as the mega-caps got killed.

They are not so strong as to avoid pressure and zoom, while S&P's in a back room. But they can become relatively attractive 'if' novel or in disruptive areas (it is also the case oft-mentioned that a sprinkling of such be considered; that is normally how one approaches limited speculation in stocks; some will work, while, almost assuredly, not all will pan-out as hoped for. A few will suffice.)

In sum: this is a dangerous market; more chop to go; but more so for 'theme stocks' that benefited in the pandemic's heart; less so in the already smashed.

A few (old-timers?) may recall a fund that was hot in my early 'daze'.. it was called the "Manhattan Fund"; run by a top-notch manager Gerald Tsai. It went from #1 performer to #300 and did that in less than 2 years. Then we got 'hot' "Enterprise Fund"; run by infamous Fred Carr (when he got in a deal leading to running Executive Life, I took over his just-decorated new offices in Century City, part of my lightning LA experience, way back in another life). He was too cocky; got involved with Michael Milken (who I never met) and troubles. I was just a humble financial TV anchor who called a few key market moves :).

The point is: I hope Cathie Woods' "Ark Innovation" doesn't suffer similar fates some of those early fund guys encountered, by being too heavily stuck on one approach ('Nifty 50 then', even Junk Bonds that turned people's portfolio's to rubbish... so thankfully I didn't trust anything to do with high yield investments and avoided it entirely.) Do I think today's tech funds are heading for a fall? In fact it might be closer to the end of the fall; based on what already occurred in the market last year (distribution under-cover of strong S&P and NDX).

But 'if' we don't emerge from pandemic fast enough; global imbalances will prevail, in difficult ways; and that's part of the known-unknown that should tame the Fed, which has now learned to 'be careful what you wish for' (with their goal of 2% inflation, which made no sense in the first place).

'The tale of two markets' that I called 'bifurcated' for a year, persists; just more visibly now; because we have not (yet anyway) had a real 'January effect' lift. We did have an intraday squaring firming the broad market late Friday; which I suspected likely after a very defensive Thursday and early Friday.

I thought we would be choppy to start; called the drop and the bounce, but the overall behavior has not yet indicated much upside expectation for the S&P or other big Indexes. Knowledge of the Fed waiting to 'pound' markets deserves a lot of the 'credit' (or blame) for the hesitancy to take-on positions; and we've mentioned that would limit the rebounds, precisely because of backdrop fears.

However, you do have some seasonal money showing up as I mentioned (Friday morning we heard that with regard to Blackrock); and opposing that you've got JP Morgan's Dimon talking about taking 5 or 6 hikes to ebb inflation pressure and effects. I dispute that because stocks would break down further, well prior to that many hikes; hence the Fed would feel inclined to back-off prematurely.

My point has been that the Fed cannot raise that many times as he suggests, because it would break the economy and the market and not be offset by the increased demand for goods and services. This should blunt the Fed flexibility before that time; but again there are so many known-unknowns just for now.

For now most technicals are fairly neutral; giving the Senior Index space for a couple swings without defining the grander picture. Overall we may well work lower (or even plunge the mega-caps with psychological impact on others too) perhaps later this Winter or Spring; but that's not clearly telegraphed, and for sure depends on Covid more than the Fed's 'inclinations' or other factors.

Politics doesn't really play into this for now; although it's disturbing. That's for sure the case on the global stage; as Russia tries hard to replace China as a 'chief provocateur' of disruption (or even arrogance). I also am unimpressed by The White House saying 'intelligence' says Russia plans a 'false flag' sort of destabilizing operation in Ukraine. Perhaps they do. But if the 'source' they refer to, happened to be chatroom gossip on the internet; it shouldn't rise to the White House and mainstream media universal coverage. (One Saturday report suggests the only 'intelligence' was from online ruminations... and no, Putin wasn't performing on TikTok as far as we know; but maybe that's next?).

Monday is MLK Day; with markets closed. Enjoy the rest of your weekend and we'll be here Tuesday; which (initial selling or not) should then see a rebound try; providing of course neither war nor another disaster occurs first.