Market Briefing For Monday, May 8 '23

A myriad of perspectives - about how to interpret the Fed hike days ago and Friday's Jobs numbers. Well, they are all likely containing kernels of validity of course; but none will clearly delineate the road ahead; other than perhaps just saying the Fed won't pivot to cutting yet; but we should have a rate 'plateau'.

Although the rest will indeed be data-dependent; there are a couple aspects worth nothing. One is the 'birth-death' ratio; which I discussed (in video 2) that created an aberration in the data, which might entirely offset the 'so-called hot' jobs number, which wasn't so hot when you made that appropriate adjustment (and this matters). It matters because although I'm unaware if any financial or other media noticed that; but the Fed's own staff surely did; and they know its meaning is so dire as a superficial 'higher for longer' rate trend interpretation.

So that 'model' adjusts number in such a way that the Fed can 'pass' on hikes at the next FOMC meeting; and also tells you job losses are lagging data that suggests things will slowdown even if the Fed does nothing more near-term.

The other perspective might be something I've hinted at lately; but becomes a clearer omen today: the prospect of the 'war' ending or at least a ceasefire. As Ukraine gathers major forces (including over 200 modern battle tanks) for the long-awaited Spring Offensive against Russian occupiers; aggressors blinked.

There is friction between the Wagner mercenaries and the Russian Army; most of which have no idea why this Putin war continues. Now would really be a perfect time to end it; prevent needless more killing and avoid fighting when things dry up (that's now) and become a 'tank killing field'. Crossed my mind that Russians (either regular Army or the mercenaries) sent those two drones to attack the Kremlin, since no drone flying from Ukraine has enough range.

In sum: the market absorbed the 'perceived' Jobs number very well, and we finish the week with traction held by Indexes, while S&P is still in our 'range'.

I'm not envisioning 'peace in our times'; nor any palliative to Putin's terror; but if the mercenaries 'do' withdraw; it could push forward negotiations. Putin sure will try to hold onto Crimea (historical relationship to Russia clearer than all of Ukraine, with much of Western Ukraine originally part of Austria-Hungary and even Poland... this is all pre-World War 1 border and war disputes); but there might be enough flexibility to negotiate (readily in-case Putin's promptly gone).

Aside that (which would be a big market relief), inflation is systemic and most folks don't realize that 'even if' you got inflation down to 2% (you won't); that's not combating inflation as much as just slowing the pace of price increases. If however, the Jobs numbers stay reasonable (again they are not 'really' hot) it is still a bifurcated country to some degree; those invested 'for inflation' are in decent shape (residential housing went up) while those fighting stocks with all the short-selling, are more likely to get crushed if they stay persistently bears.

Yes there can still be roller-coaster action this month as outlined; and it's quite incredible how S&P swings within the ~4000-4200 trading range (aggressive neutrality as I called it) without a real macro resolution. Not an exciting pattern forecast (neutral but volatile within the range); but it's been a proper analysis. I suspect we have more of the same in the week ahead; more upside 'in-case' there's movement toward a cessation of hostilities in Ukraine. Maybe anyway.

Overall bank deposits declined this week (reported after the Close; but much of that was slippage from foreign sources); we have CPI as key next week; as well as some earnings reports for Q1 at the tail-end of the reporting season. I won't be surprised if the first POTUS/Congressional leader meeting on Wed. is not able to finalize anything; then we shakeout; but they agree thereafter. It is impossible to handicap; but I doubt the Speaker will submit too readily.

Despite the rangebound 'aggressive neutrality' (with often predictable surges, and then purges) within the S&P trading range, the stock market is a dynamic structurally complex ecosystem that’s constantly evolving. Not only investors, but money managers with varying goals, try timing preferences or biases. It's part of why we had this range; and termed it (not exciting but right) aggressive neutrality. And interestingly, even if this rebound exhausts and we crater anew later this month, it can still be a set-up for a rebound to the range high levels or beyond, by mid-Summer, if things go well. Sooner 'if' peace breaks out.

What has been eclipsed is the catastrophic projections; even though bears do tend to stick to their dour forecasts, even as the Fed knows they have to shift a bit away from persistent hawkishness, regardless of data-dependence due to finally seeing how much damage they can do to the economy; and maybe a few of the FOMC members grasp this inflation won't be tempered solely at the whims of the Fed's stringent monetary policy.

A lot of money managers use Quantitative Models to expedite strategies and that's an area where some speculate AI is going to make inroads. Already has in my view... probably for about 20 years.

As for stock markets, AI is a powerful tool, but it won’t replace analysis if for no other reason than the tried and true hedge: past results are no guarantee of future returns. That’s saying cuts right to the heart of the issue. AI for now uses historical data and algorithms to make 'probabilistic' predictions prompts.

Given that the stock market is a dynamic complex ecosystem that’s constantly evolving, that gets tough. But the existing 'algo-trading' is essentially AI or for simplicity, we could say simply 'trend following techniques', with estimates of when a market or stock pivots the other way.. plus duration and fundamentals.

So, 'free' AI already may be able to help the individual investor get informed a bit more; but probably limited with respect to investment decisions.

So Friday we got S&P up nearly 2% in the projected post-latest-bank-woes purge. Energy and obviously Financials lagged the markets; but rebounded. Of course Apple helped the move; and that was more from the huge 'buyback' proposed, more so that impressive results. It's part of Tim Cook's effort to for the most part keep AAPL shares at the helm of leadership and reflect Apple's viewpoint as being more of an 'essential component' of modern life.

They're close to that; but for the most part I'm not enthused about share price gains built on buybacks that (of course) enhance executive compensation that shareholders let them get, because the price goes up for regular investors too (and that's fine, except interest rates are higher than when many did this back in 2021 and that contributed to the absurdly high S&P valuation levels then).

As far as a bit of discussion about AI: Apple has been using machine learning AI for years; which is how 'Siri' learns from the input (she's always listening...). When CEO Cook responds to questions about AI, he says 'thoughtfully' they'll consider ways to 'work it into' their products; and as I say it's already there in a way; but will become broader. A 'pure' AI implementation like 'Chat AI' will go way beyond (for-instance) Siri's capabilities (she isn't reall 'conversational') and from what I've heard the computer 'code' on which Siri is built won't lend itself to a tremendous upgrade to 'Chat' levels; hence they may be better-off if they construct a separate product and then 'sort-of' integrate them.

Speaking of what comes next; of course CPI for the macro market. For smaller stocks; several have earnings reports and/or Q&A calls coming next week. 

Bottom line: got our rally; earnings season winds down; the banking crisis is on pause (at least) for the moment; peace 'might' emerge as a possibility for Europe; and now we must await the CPI, which will show higher price levels and cause more consternation about the Fed's (ineffective?) monetary policy.

Weekend news (like any more banking issues) are always a concern; deposit declines were reported after the Close (mostly foreign; as domestic was up a bit); CPI looms; and the continuation of May's roller-coaster S&P is expected. Nothing like the crazy regional-bank-driven volatility of the past week; ideally.

More By This Author:

Market Briefing For Thursday, May 4 '23
Market Briefing For Wednesday, May 3 '23
Market Briefing For Tuesday, May 2 '23

This is an excerpt from Gene Inger's Daily Briefing, which typically includes one or two videos as well as more charts and analyses. You can subscribe for   more

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