Canaries left the coal mines  earlier this month. Money managers seem a bit more inclined to identify or expand on these prospects. Nevertheless many concerns they've expressed reinforce our view about false interim rallies and 'Fall' fall risk. So many have embraced this view that it's hard to even stabilize briefly ahead of the holiday. Maybe that catches shorts a bit, but generally not much interest on the buy side with trepidations about the weeks ahead. 

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Again I noted any pre-holiday rebound could be little more than a respite from the selling pressure, both due to liquidity typically lacking in September or into October, and of course the Fed embarking on QT (Quantitative Tightening) in a more aggressive phase of liquidating Treasuries than heretofore.

Sure, one can also add-in the geopolitical concerns, like Taiwan properly firing warning shots at PLA drones flying over their islands offshore mainland China today, but barring full-fledged war between the Chinese entities, the real risks to global markets relate more to China's serious economic challenges, which Vice Premier Li actually elucidated today. He said they'd have to 'fund' overall recovery more extensively and indicated it would be a serious process. 

How that relates to the 'brain-drain' they are now experiencing wasn't noted in his remarks, but we're aware of how the 'tables have turned' and instead of a flow of ex-pats to the USA to learn and return (with intellectual property) to the Mainland 'global factory', you have American and European ex-pats in China increasingly leaving, or at least realizing that the trend is reversing seriously. 

I don't know where this ends up. The world is highly intertwined, and as I said often: 'a little bit of globalism is fine' while 'too much is dangerous'. I warned of it being excessive for decades and as usual, changes occur only after trends were allowed to go too far. 

The big consideration for the United States might be how the appropriate and delayed re-shoring crucial production to America also inhibits dis-inflation that the Fed desires, given that engineering and technology jobs command wages at the higher end of the salary ranges. However this is the trend and so far no hints of sufficient rapprochement with China to modulate this shift, aside those accounting requirements for Chinese stocks listed here, that will be de-listed if Beijing fails to comply with the recent agreement to audit them accordingly. 

Interest-rate increases are starting to be 'believed' and eventually built-into at least part of the market psychology. However we're not there yet, the QT part is unrolling, and basically there will be plenty of liquidity later to turn stocks up, but most of you have seen this movie before as have most fund managers. It isn't so bearish as it is disarming and tends to support a partially sideline view at least until this moves a bit further down the line (hence it's a process). 

Others have noted something I've pointed to for a long time: aside technicals like the 200 DMA and now the 50 DMA, it's the 'don't fight the Fed mentality', as well as recognizing that Apple, Oil prices and the Dollar really matter, with Apple likely the single most important key to the S&P. And economic reports that coincide with something else: 'good news is bad news' for now.

Because it is assumed they'll stay the course on tightening regardless, and if the Fed is able to expand their 'restrictive' policies, because they 'think' they have strong economic data and consumer confidence, well, that can create a trap for them down-the-line, sort of opposite of their 'inflation is transitory' very wrong-headed view. Either way, especially adding China and repressed EU to this, it's a slow growth environment, QT rolling-out, and war drums beating..so let's hope Beijing puts their Zhangu, Tanggu and Biangus (drums) away. 

In-sum: 

We have a continuing downtrend, possibly a double-dip recession, as well as geopolitical challenges (including the war which might trigger either an indescribable attack by Putin's forces in response to the counterattack, or in a perfect world a truce finally), and a technical picture deteriorating for weeks.

The market technicals are evolving about as reasonable and logical. If there's an aspect that's off, it's the correlation between what the Fed expects tighter policy efforts to achieve, and the 'stickier' inflation that is embedded now. 

Every developing country (not just us) is hiking rates in the fact of economics that are retreating. It's delusional in a way, but also decidedly different given a lot of countries were not 'so hot' economically coming into this situation. That's what I suggested that bad news was good news, but only for awhile, as here a Fed central bank was hell-bent on offsetting their previous behind-the-curve stance. In a sense this who combination with cross-currents and global issues is going to allow (or demand) things to settle down further before new upside.

Technically .. people are paying-up for almost everything in life, and valuation was a silly argument to sustain upside in stocks, which was also at high levels for the big-caps generally. Earnings don't have to fall before stocks decline, as you've seen before and now.

The JOLTS number this morning and 'Sentiment' were pretty strong, and that is not helpful, but shows economic resilience. In some ways it may show lack of growth in many sectors (that have more recently reawakened), but looking for multiple expansion to back a big rally 'now' makes no sense at all. Market action is sort of trying to price-in the extent of 'relative' 2023 earnings decline.

Inflation will come down eventually, but at what cost if the Fed is so dogged about being the catalyst, rather than letting energy come down in a more natural way, and recognizing that he can't claw-back wages nor Mother Nature, who continues to make farming and overall agriculture a nightmare. I'll add that the drought and climate concerns transcend the Fed, and all the tight monetary policies just make it harder to make a living in already harder times.

However the Fed and (indirectly facilitated) buybacks contributed to excess, a overblown preceding market that begged to have some of the excess hot air released. As that balloon becomes deflated, and inflation wanes 'somewhat', I suspect we'll get to an important buy zone for S&P, but that's not as of yet.

For the moment S&P is swinging in a range around or just below the 50 Day Moving Average, and there's no compelling reason to be too enthusiastic. 

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