May 11 Pre-Market: US Equities & Fixed Income are down today (quick reversal on 8.3% inflation headline)
By Jeffrey Cohen, US Advanced Computing Infrastructure Inc.
Here is what we saw in the markets today, pre-market.
Our market 'edge' is higher by 25% on our top portfolios. It climbed from 4 x 10-4 to 5 x 10-4 over the S&P 500, Nasdaq Composite 100, Russell 2000, and buying and holding all profitable stocks today. This is good news. We are seeing some semiconductors, money managers, and large-cap tech growth stocks, but new information we are seeing more 'regular economy' stocks at the top of the list. Main-street companies like McDonalds and Accenture must be flattening out.
1. The business news was universally negative in regards to the 'main street' economy.
- Mortgage rates are up which means smaller house purchases, or faster pre-payment
- Inflation was 'down' at a headline number of 8.3%
- Russia is gearing up for a more protracted war effort
- The US is spending another $40B in aid to Ukraine
- UK considering a windfall profit tax on energy producers
2. Company stocks individually are being punished for suffering from economic weakness in their quarterly earnings. We saw this with $UPST or Upstart, which is seeing softer loan origination, and softer demand for completed loans by banks. We see this with $GRWG or GrowGeneration, which is seeing sales drop and now shrinkage. This swung them from profit to loss. $RGS Regis which cuts hair and makes people beautiful is doing all the right things to cut costs, but they are selling less product and seeing less revenue (on the front lines - haircuts). $PRTY Party City has less store traffic and is suffering from higher transportation and in-store costs. $ATIP ATI Physical Therapy continues to drop, as a hands-on services firm operating out of strip malls, along with so many other stocks.
3. Market Breadth is weak. Many more new lows than highs (~1:48 ratio), and < 20% of stocks are trading above their 50 day and 200 day simple moving average (SMA). We discussed how most stocks are lower than they were 2.5 months ago as well as 10 months ago. Most stocks are lower that regular investors bought over the past year.
4. Politics is heading up as we head into elections, and this gives us much less confidence that real actions will take place to fix our 'main street' recession problem. Regardless of your politics, our President of the United States is blaming Republicans, making $30/month give-aways to eligible households, and seems to be talking up war, class warfare, and his 'let's tax the rich and give to the poor' rhetoric. This does not help solve the real issues we face. Our Federal Reserve Bank is acting prudently and conservatively, and potentially much too conservatively, but they are doing it to minimize pain in the markets and on main street we believe.
5. Futures were up much higher. Screen was very green. However, we did not see much conviction in the readings. In fact, during our video the futures on US equities went from Green to Red, or up to down. We still don't see the conviction in prices rising.
6. It is starting to sink in that Russia's reason for their pre-emptive war in Ukraine had grounds in NATO boosting up Ukraine, Ukraine indicating it wanted to possess nuclear arms again, and that Ukraine indicated an attack on Russian controlled border areas was planned. Russia asked the West for a renegotiated peace treaty to ensure its border safety and I remember at the time that it seemed to be laughed down and dismissed out of hand without any concessions being made. Russia may be in this for the long haul, replaying their Cold War and Post WWII playbook, unless they are either made to feel safe, or are disarmed.
7. The VIX, or the cost of downside protection for US Equities, was down this morning (-6%). It is inversely correlated to US equity prices, but not exactly. However, it is still very elevated at 32.52, and the market 'PUT' protection is still expensive. This is very expensive, and indicates large traders and money managers are spending premium to protect against downside risk. This is bearish for the market in some circumstances, and indicates 'big money' is still spending to defend against an unexpected market drop. We are still at insurance premium levels from previous market declines.
8. Crude oil delivered at WTI (or Texas), was down to ~ $100/bbl. This indicated a lessening of demand globally. When we look now, about 5 hours later, it is at $105.90/bbl. This is a 6.15% increase today which is a massive move historically.
9. Crypto continues to trade down. We see this as another asset class for speculation. When bitcoin and crypto is down, it means that incremental money is not entering the market and the currency is sliding on lower interest in betting. It is an accelerant to the US Equities markets. At this writing, Bitcoin is down 3% to 30,295, and 150 crypto currencies are trading down 50% or more today. This is a very large move to the downside and will clean out many wallets (pun intended).
We also notice that crypto-related stocks and business are also lower, including $COIN Coinbase and $SI Silvergate Capital.
10. We are not 'technical' analysts, but we do stare at the charts sometimes. Here is what we saw this morning.
- S&P 500 has been going lower, with lower lows and lower highs. This is not a positive story.
- The Russell 2000 has been in a steep decline for quite a while now.
- the Nasdaq Composite 100 has been in a steep decline for about 1.5 months, after trying to rally. Large cap tech stocks are also flat to lower without positive momentum. Flat trajectories in large cap stocks could create a feeling of safety but it could just be mechanical, passive money flows. Every time a retail investor puts money in their 401K, some of it goes into the large-cap growth stocks.
11. In the video we also discussed inflation. We published an article on inflation just about a year ago in Medium (under Chicago Quantum) which discussed how inflation is caused. We also lay out how our US government officials can combat inflation quickly, efficiently, and effectively. Here is the tweet we highlighted during the video.
12. There are negative BETA investments if you want to bet against the market, or hedge market downturns. We discuss US Dollar, Physical Gold, Short QQQ and VIX ETFs that can be purchased like regular stocks. These are very risky, so please be careful and only invest what you can afford to lose.
Our main point in the video, and across our social media, is that FOMO is a low-cost strategy. Stocks that are lower will likely be lower still in a week or two. We are not adding our money into the market today. However, we are building our buy list, and you should be too, to figure out what to buy when the market stops falling.
By lunchtime, the US Equity markets are all lower, all RED. We were not wrong, this market lacks conviction and you should keep your powder dry.
Stock Market BLOG
President and Investment Advisor Representative