Market Briefing For Tuesday, Oct. 11
Multiple compression is the common justification for why stocks should or will be lower going forward, at least for a few months. We'd shift that to just a few weeks or at most months, while isolating the risk to the big-caps that are under the gun we've talked about all year aside from interim bounces.
Speaking of guns, should Admiral Mullen's advise to press Russia to engage in negotiations over ending the Ukraine war, prevail. . . well dynamics change and that starts with Oil and eventually the Dollar, both of which relate not only to the obvious carnage in Europe, but to inflation and economic expectations.
(Subsequent to my embedded remarks, Ukriane claimed they did it with a big truck bomb. Maybe, but I did notice the video of a boat beneath the bridge too and really either way, how can Russia call it 'terrorism' after what they've done to Ukraine. I respect Admiral Mullen's call today for negotiations.. urgently.)
S&P really is about the 'macro' as they say, and we've forewarned of the big cap vulnerability for about a year and a half, sine distribution under cover of a slew of 'big-cap buybacks' denoted a charade to mask large internal selling.
As or if the 'war' ends (and even if Iran by the way revolts and becomes free for the first time in half a Century), not only will Oil supplies improve, but from both aspects should that occur (S&P will be happy to see Ukraine resolved or Iran freed, but one of the two seems sort of essential). Along the way it helps if China does not go crazy and invade Taiwan.
Significantly adding to existing concerns, has been the Biden administration’s heavy new restrictions on 'chip' technology exports to China. Furious Beijing came close to calling this a 'war act', admitting it undercuts China's ability to develop wide segments of its economy, ranging from indigenous semiconductor developments (apparently their IP theft wasn't as complete as they planned).
To that add supercomputers, surveillance systems, advanced weapons, and even cyber-hacking, which they're engaged in quite seriously (against Taiwan and South Korea as well as the USA and Japan, but mostly hitting Taiwan). Limiting the sale of semiconductors and chip-making equipment to customers in China is logical, but will it stall or stimulate Beijing's aggressive intents?
Of course that's a tough question, and as '60 Minutes' highlighted Sunday, it's unclear 'if' Taiwan has the 'mood' to be as resilient against China as Ukraine, with it's unique leadership, was against Russian aggression. I noted the prior Admiral in-charge of Taiwan's Navy saying they were buying the 'wrong' gear to defend the island, and that matters if China mounted a massive attack. The concern is there's insufficient time to get what's needed manufactured as well as delivered, even though Taipei has ordered billions in undelivered gear.
Domestically, what the Fed watches matters, and they have been too myopic and too after-the-fact reactive for at least two years now. Underlying inflation's peaked in some ways, although it's a tricky issue to assess whether hell-bent Fed-heads are willing to recognize this until the 'core' numbers affirm all this.
For now (this week as a matter of fact) everyone watches the CPI, and unless it shows up in the data (not quite yet, plus you have Oil rebounding as we've also called for, but deflects inflationary easing being recognized elsewhere). It takes historically about a year or more for rate hike to have the impact desired by the Fed, and we're only 6 months into their belated hiking cycle. So maybe they end it more abruptly depending on events (like peace?) or a collapse.
In-sum: severe 'big-cap' risks exist, along with eroding those already killed, in the final quarter we're in. It is also conceivable we make a low in this quarter.
Disorderly conclusions to a downtrend are normal. Orderly declines typically mean more to go, and that's what I've contended for some time (a process). It often ends with a 'whoosh', but we haven't had that sort of event, at least yet.
By the way Jimmy Dimond today said 'it's all about the war', and I concur. The problem is the Fed doesn't grasp that, 'thinks' it's mostly about their influence.
'Liquidity is a little fragile in some markets'. Lynn Brainard. No kidding. (At the same time Bernanke opined this is not the financial crisis of yore. Also true.)
The market is apprehensive, bonds were closed today, likely firm tomorrow in advance of the CPI. That could again be a kicker to the market...either way.
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