Morning Roundup

By Mark Masterson on November 16, 2022

Good morning,

Below are the news items moving markets today

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Executive Summary:

Markets a bit volatile to start the day as economic data remains mixed.

We are starting to see more mentions of layoffs.  In fact, mentions are at 10 year highs.  Unfortunately, credit card balances are also moving higher….

• According to Bespoke Investment Group, mentions of topics like job cuts, firings and layoffs at highest level in at least a decade.
• Fits with the macro uncertainty/softer demand messaging from management teams on Q3 conference calls and the pickup in corporate cost-cutting headlines.
• Also puts some scrutiny on the broader consumer resilience theme at the same time that credit card balances are surging.
• Latest NY Fed report noted that credit card balances were up $38B q/q in Q3 and up 15% y/y, the most in more than 20 years.
• While inflation an obvious factor, balances have grown at nearly double the inflation rate.
• Report noted delinquency rates have begun increasing, albeit from unusually low levels seen during pandemic. Added that they remain low in comparison to levels seen during Great Recession and even for period of growth in the ten years preceding the pandemic. However, direction of travel matters and credit normalization a takeaway from latest master trust data. BofA downgraded Capital One on Tuesday, flagging faster than expected normalization.

That pesky yield curve is still sending the recession signal for next year.  It’s not a great timing tool – meaning it inverts before the recession, often by months.  But – it is a very accurate signal.

As of now, it is inverted (the 2 year/10 year yield) by .62%.  This is the deepest yield curve inversion since the early 1980s. It’s even worse than what led to the Great Financial Crisis or Dot Com Crash recessions.

• US economy:
  • NY Fed survey shows households taking on debt at fastest pace in 15 years (CNBC)
  • Dallas Fed study shows US house prices could drop as much as 20% on surging mortgage rates (Bloomberg)
  • Slowdown in US used car market contributes to cooling inflation (FT)

Below in the charts I am going to cover some thoughts on equities…….

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Articles of Interest:

• Central banks:
  • Fed officials back slowdown in pace of rate hikes (Bloomberg)
• Markets:
  • Long inflation trades unwind with CTAs in worst bout of performance since Mar-2020 (Bloomberg)
• Geopolitics:
  • Biden said it is unlikely missiles that landed Poland were fired from Russia (Bloomberg)
  • Signs emerging Russia may be retreating farther after abandoning Kherson (Reuters)
  • US Treasury Secretary Yellen and Chinese central bank governor Yi had constructive economic talks at G20 (Bloomberg)
• Washington:
  • Trump announces his intent to run for president again (Politico)
  • GOP just one seat away from clinching a (slim) majority in the US House (Politico)
  • Biden administration considering asking oil companies to bolster fuel stockpiles (Bloomberg)

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Charts of the day:

It’s been another massive rally in stocks since October.

What I struggle with at this point is – everything has gone right over the past 5-6 weeks.  I made a list.  Here it is……

• Mid-terms are behind us, and it delivered the expected and hoped for “grid-lock” that normally ignites a rally in stocks.
• The Fed leaked the “pivot” headline before the Fed meeting signaling a possible slow down in rate hike levels.
• The Bank of Japan intervened in the Yen – pushing it higher and the dollar lower
• The Euro rallied hard – pushing the dollar down
• The dollar crashed lower over the past two weeks
• Inflation data came in lighter than expected – both in CPI and PPI
• More dovish chatter from Fed speakers
• GDP was positive in Q3
• Earnings – outside of tech – have been OK
• Short interest has been crushed as the shorts were forced to cover
• Bond yields leaked lower
• China leaked headlines about “re-opening”, sending stocks higher on hopes for global growth.

That is a very long list.

Yet – the market could only muster a run back to the 200 day moving average.

This is an important level.  It will need to get above it, and stay above it, to offer hope for anything more than a bear market bounce.

It may soon lose the tailwind of the lower dollar.

You can see the massive crash lower over the past few weeks.

It is now oversold, and sitting right at the 200 day moving average.

I doubt it will break that – at least on the first try.  It may move lower, but is poised for a bounce here.

Sentiment has (of course) been reset.

The CNN Fear and greed index is back at extreme greed…..

CNN.com 11/15/22

The Sentimenttrader.com smart money/dumb money is now squarely neutral, having moved from extreme fear in the dumb money to nearing greed again…..

Sentimenttrader 11/16/22

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Quote of the day

Fraud is the daughter of greed

Jonathan Gash