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“Davidson” submits:

While the govt was closed, the Net Non-Commercial Futures is not reported but other market indicators suggest capital continues to move into equities. The two Yield Curve measures favored today are the traditional10yr minus 3mo and the newly minted 30yr minus 2yr favored by the hedge fund momentum sector. Inversion (below zero) has been spoken of as a recession indicator for both. The 30yr minus 2yr was the first to break out of inversion July 2024 with the 10yr minus 3mo following in Dec 2024. The latter stalled Feb 2024 with uncertainty rising on changes in US tariff policy but now appears to be positive and is a signal that capital is flowing generally into equities. The most favored equities had been high-tech with the media recently solely focused on AI continuing the post-COVID fears of recession due to relentless supply chain issues. Just as relentless has been the growth in the number of industrials beating analyst estimates.(see recent headline)

Earnings Roundup: 

Out of the 173 S&P 500 companies that reported earnings this week, 142 of them beat EPS estimates, while 127 of those names surpassed revenue expectations.

Market psychology, as reflected in the mfg PMI, has been recession focused since Nov 2022. Meanwhile Industrial Production has held at record levels. This has been a telling period of mind-over-matter and a significant buying period with many substantial gains along the way for industrials that the media has flatly ignored. The string of global geopolitical and economic successes scored by the current administration appears to finally be sinking into investor perceptions as the 10yr minus 3mo has lifted from flirting into inversion and is now rising. This supports the traditional interpretation of capital moving off the sidelines and into equities. At the same time very reluctant Fed Chair is being pulled by the collar to reduce rates as the Discounted T-Bill Rate(DTB3) fell to 3.77% at Friday’s close. Each dip in DTB3 is revealing the Fed’s lack of “following the data” but relying on the direction of DTB3. The significant hiccup caused by his reluctant comments Oct 29th have been mostly reversed by market forces. The market recognizes that tariff policy is not inflationary while the Fed seems to miss the basic economics of this.

The next Fed Funds rate reduction will occur once the DTB3 falls to 3.58%.

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