Market Briefing For Monday, April 15, 2024

Reflationary forces drove commodities, particularly Oil, higher for weeks. That was the central basis of warning last month, to use rallies to lighten-up mega-cap stocks. I of course noted geopolitical worries; as everything above 75-80 in WTI relates to Middle East risk, not routine supply-demand issues.

So while there's no doubt global economies are stronger than bears expected all year, there's also no doubt that this week's roller-coast S&P pattern tended close to our outline, following last week's 'key-reversal outside-down day' . . that it seems nobody else elevated to significant importance technically. If this is merely the market setting-up an opportunity to buy some see; I don't see it for other than a trade (if war expansion is avoided); especially for mega-caps. I do see specialized scenarios (especially beaten-down small-caps with high short-sale positions) that could be squeezed if there's a rocket-like rebound. At this point it's impossible to determine, as it depends on devious mullahs.

My biggest concern was Israel being overwhelmed by rockets and demonstrating insufficient ability to intercept them all. It is the preparation of all that which POTUS was likely thinking of when he'd opined that conflict is 'sooner than later'; given multiple rocket attacks today.

The reversal over a week ago, with the requisite rebound try and failure; from a technical viewpoint was rather orthodox in terms of exhaustion sputtering in big-caps. And not that happened before an expanded war seem possible.

It's also worth noting even the big Semiconductors took a hit on Friday; after my comment a day or two ago suggesting all the upgrades of 'price targets' by a slew of Wall Street analysts, represented no value assessments, but merely effort to justify money managers seeking shelter in the overprice mega stocks.

To wit: they said buy, and I interpreted that as sell on at least a trading basis; at the same time for sure we suggested ringing the cash-register earlier on a majority. But that majority (include long-held AMD which pressed 220) are all lower now even after the spurts they had on rebounds. It wouldn't surprise me if we see Apple stabilize on the upcoming (unnecessary product revisions for the purported purpose of helping AI work better on their platforms.. processor speed matters more with AI, but M1, M2, M3 or M4 are all similar designs so it is not like replacing a CPU with a GPU.. we showed the difference last week).

You even had layoffs at Google, as few analysts willing to note the bifurcated economy ignore different impacts on segments of society and ability to cope; on Housing particularly and certainly with affordability of daily living 'basics'. It is something the PPI reflected a bit better than the CPI did; and PCE may just clarify further; but let's face it, many people are struggling and that's part of all the pressure for lower interest rates, even though it's generally not justified.

In fact maybe the best justification is that high rates have themselves pressed prices to higher levels, especially commercial and residential property. It's why I was already cautious about Banks and Financial Services. Also all down led by JP Morgan Friday of course (even though big banks made their numbers).

Market X-ray: it's difficult to differentiate the inflation / interest rate issue; or the dire warnings from Jamie Dimon, from the impact of geopolitics; so let's say that the rising rates and rising prices set the stage; and the reversal day over a week ago; with the geopolitical deterioration triggering later evacuation. That evacuation was an 'absence of bids' on Friday.

So, is there systemic risk here? There has been, to big-cap S&P, for a month. It is confusing due to monetary policy issues (and inflation) versus hotter war concerns. Because the broad market is already crushed, it can erode more of course; but not like the mega-caps, which I've thought 'deserve' to go down.

I don't think it appropriate to hedge 'into weakness'; but did view last week as a good time to hedge, write covered Call options or something; but not buy or chase any of the mega-caps which had generally become outrageously priced and sure, that leaves open the possibility of working lower. Plug-pulling? Hard to do versus 1987 or 1999-2000, or 2008 or during Covid. Why? Because it's only the big-caps that are extraordinarily priced; the broad market sure is not.

For the moment 'braced for attack' summarizes the geopolitical spectrum. Of course we will try to navigate around whatever actually happens (or doesn't), over the weekend.

I'll not delve into 'flash crash' comparisons or 'Black Monday' as in 1987. Yes I know that a pundit or two defending mega-caps yesterday talk of disaster now and really neither approach makes sense. S&P was fully-valued for bigger stocks 'before' this month, and small-caps undervalued. So now we can get a relief rally or a debacle, but neither will be related to economics just for now. I also note that S&P 'circuit breakers' don't really stymie a decline. Sell orders tend to pile-up while trading is halted; driving prices lower on an opening. So 'if' that were to happen here, it won't persist.. barring nuclear war of course.. or .. if trading starts meekly Monday and Iran attacks while stocks are open (I am reminded of heavy shorting in London by Saudi's just before 9/11 attacks).

This remains a 'rich' S&P; and poor small-cap market. Mega-cap tech remains the leader and almost the only action; and topped-out rotationally over the last month. Those stocks might very well 'rip higher' for a few hours 'if' we emerge from the weekend with softer talk from Iran and if no actual engagement. And yes 'if' the economy is perceived as slipping; then some big stocks are pricey almost regardless of whether the Fed responds by cutting rates or not. China is having problems lost amid all the other concerns; and that matters too.

For Israel this is an existential crisis; but for the United States we've not been so forward-deployed with strategic assets as we are now 'before' a conflict is actually hot. (Gulf War required weeks to move forces before open warfare.) If the Iranians are really thirsting for war with Israel they have no smarts at all as it will doom their nuclear ambitions, and possible arouse the Persian masses to throw the mullahs out of their theocratic position.

Given PM Netanyahu's policies, which are debatable, you could say Iran thinks they're winning at public opinion; but much of the world has always had such sentiments. So 'if' Iran holds-off, but there's no clarification, Oil will still go to higher levels, Gold too; and if there is more 'blinking' from Tehran the opposite of course. However, the mega-caps can still be in an evolving roller-coaster in regards to lack of justification for the extraordinary prices levels they're at; sort of like an 'island of strength' sustaining the S&P while slippage everywhere or even worse in small-caps. This alternating action all weeks is as outlined with of course an absence-of-bids to conclude the pre-military-weekend status.

Bottom line: the market was already on war-watch; when President Biden said: that he expected Iranian action 'sooner than later' as far as an attack. 

Obviously we get a rebound if expanded war is averted; tank below 5000 for S&P if not; and either way the leadership is too expensive; small-caps too low but that continues too during this period of not just uncertainty but hostilities.

More By This Author:

Market Briefing For Thursday, April 11
Market Briefing For Wednesday, April 10
Market Briefing For Monday, April 8

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 follow Gene on Twitter  more

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