Market Briefing For Wednesday, May 24 '23

'Down to the wire' fairly describes a few factors influencing short-term S&P behavior. Of course the 'Debt Ceiling' issue but also inflationary data which is going to suggest some higher and some slower paced inflation, but inflation in any case. 

Freepik

And dare I say there's wider concern about Covid, a topic I'd rather consign to history. Plus of course the (clever?) 'partisan' attack 'in' Russia.

Aside the various metrics, there is one other thing: reality... inflation-adjusted rates are not out-of-line, and that's even when viewed on a global basis. It's a bit classic, but aside the extreme 'event-driven' monetary moves, such as the 'Epic Debacle' of 2008 emergence, or the pandemic-based liquidity injections of 2020, we come back to the consideration that 5-6% rates barely keep pace with inflation, which means that in the real world that's equanimity or normal in a sense. So aside that being reality, it also makes it tougher for Bank margins to be maintained (a reason why we're not particularly enthused about Banks).

An aside for a moment, as I see foggy California on TV screens. If you have traveled lately and looked at hotel prices... you know most are priced-out of very deluxe living, unless they already own retirement homes or such. I notice CNBC's CEO gathering 'supposedly' in Santa Barbara (close, not mentioning it's at the sprawling Ritz Carlton in Goleta). I think back to younger days at the truly elegant Biltmore (in Montecito) which disdained huge group gatherings. It carried the nickname of 'Gatsby West' way back ... in 'the day'.

(Oh well memories of Coral Casino, as it's about to reopen, while Ty Warner keeps the Four Seasons Biltmore plus Four Seasons NY on 57th Street still closed, incredibly beyond recovery. Dare I mention a Goleta Ritz plain room is over $1000 a night, or at Miramar in Montecito an average suite is $10,000 a night. Who is paying such rates? I guess this is one week I bemoan not being with CNBC as they'd pay to play, with revenues from all attending CEO's :). Seriously it's a great holiday for them, nearly reminiscent of the Biltmore era, but also these prices.. maybe why many 'rich & famous' stocks got slammed today, including Ferrari, LVMH, Hermes and so on. Unwinding wealth effect?

Well, no urgent market market action so I thought I'd diverge to lighter topics, although seriously higher costs of capital matter, and even VISA rolled-over. A reigning back of aspirational spenders is something that's more evident too. The economy isS slowing down, so more signs being evident is sort of a point.

Of course a main point for the short-term market outlook is Debt Crisis being sidestepped (it won't be resolved in terms of real lasting spending constraints) for now. But we can get a surge and profit-taking ('on news') kind of response. It may well be that any such 'pop & flop' reaction leads to the next trading buy. But first we have to get both political sides to come to a compromise, pending.

I might note the impact Apple's decline after their deal with Broadcom, sure impacted the S&P. What you're going to see is an Apple modem after this, it's most likely. Apple's been trying since Intel couldn't deliver in sufficient quantity and besides, the later version 5G modems from Qualcomm were much better (we urged waiting after CEO Christiano Anon told me personally 4 years ago of the next generation being an improved true SoC -system on chip- modem, whereas the original was not). There are royalties involved too, and likely this is an interim scenario (might be bigger) to build chips in Ft. Carson Colorado, a very important aspect of moving processing manufacturing to the USA.

 

In-sum: 

Defensive conditions prevailed, especially absent new timing for next Debt Ceiling negotiating sessions, though that could come at any time. There were other contributing factors (Saudi Arabia warning Oil short-sellers) and of course Russian 'partisan' combat, and I'll touch on more in a moment.. as it could be a very cleverly-planned 'Spring Offensive' disguised for surprise.

Incidentally there is a new Covid wave of some sort going on in China, surely nobody wants to hear about this, but you do have 'uneven immunity' in China, and this renews calls for people to get bivalent boosters. Talk is 65 million or so Covid cases a week in China!!, and that too is an inhibitor of optimism. The Chinese have retreated from monitoring and draconian lock-downs, and we're all aware that vaccines don't really prevent transmission. So the emphasis will go back on 'treatments', plus the U.S. vaccine of the moment doesn't cover all the latest variants. Pfizer is quietly running ads 'as if' the treatment was secret.

 

Bottom-line:

Yes new Home Sales were strong, which is a bright spot for builders and 'some' lenders, but doesn't point to lower interest rates coming. Nothing much does, as the Fed isn't getting the economic dip it wants. And the inflation / rate level will stay fairly robust.

More of the same tomorrow for S&P...feeble bounces, reluctant declines, with everything responsive to further negotiations, or more defensive in absence of such meetings. The two sides are pushing this further-out ridiculously, as that risks one of the rating agencies (like Fitch or Moody's) downgrading the US. If that happens I'll blame the whole lot for letting things fester to this degree.


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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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