In today’s briefing:
- Rising Liquidity And The Threat of 5% US Bond Yields
- 29 Reasons to Be Bullish
- Exhausted Bears, Tiring Bulls
- Markets Modestly Reduce the Ante on the Fed but Investors Remain Shackled to Easy Money
- Portfolio Watch: The Yellen Put
- Steno Signals #83 – A striking divergence between EUR and USD money trends
- US Inflation Watch: Methodology Matters – Upside surprise in PCE according to CPI?
Rising Liquidity And The Threat of 5% US Bond Yields
- US Treasury yields have resumed their uptrends and look set to retest 5%
- US Fed Liquidity continues to expand, following a 13% increase in 2023
- This is a ‘normal’ investment cycle for equities, credit and the economy, but it has been abnormal for bonds
29 Reasons to Be Bullish
- A bottom-up driven scan of stock charts shows over 29 stocks with bullish technical patterns consisting of uptrends or breakouts from multi-month bases with strong potential upsides.
- Bullish patterns are broadly based, primarily concentrated in technology and cyclicals, which argue for a continuation of the AI-related bull and an economic rebound.
- This bottom-up analysis also pointed to bullish macro conclusions about the economy.
Exhausted Bears, Tiring Bulls
- We believe that short-term outlook for stock prices may be limited, though we are bullish longer term. While the bulls may have temporarily gained the upper hand, many risks remain.
- The recent episode of price weakness was relatively shallow, and we don’t expect any change.
- Traders should continue to adopt a strategy of buying the dips and selling the rips.
Markets Modestly Reduce the Ante on the Fed but Investors Remain Shackled to Easy Money
- Financial markets had been briefly discounting seven reductions in the federal funds rate in 2024, an outcome historically associated with the onset of recessionary conditions.
- The prospective path of core inflation in 2024 will have a major impact on the timing and speed of Fed interest rate reductions similar to events in 1992 and 2002.
- Investors yearn for the return of easy money and, while the 2024 liquidity backdrop will be supportive for risky assets, the days of beta dominating alpha are numbered.
Portfolio Watch: The Yellen Put
- Takeaways: Equities are currently a preferred refuge over bonds.
- US is still the place to be relative to peers– Recession risks have diminished lately, particularly in the US, but remain a concern in Europe
- It’s becoming increasingly clear that the Treasury is going to be front and center in 2024.
Steno Signals #83 – A striking divergence between EUR and USD money trends
- Welcome to our flagship editorial!It is about this time of the year when we conclude that all year-ahead outlooks have already been blown to smithereens, but what is the major surprise this year?
- Back in mid-December, between 5-7% of respondents in the widely renowned fund manager betted on higher interest rates and/or inflation in 2024.
- This is the kind of consensus that only arises once we are leaning towards the mid-to-late innings of the recession, but the problem is that we are probably not even in a recession (in the US) yet.
US Inflation Watch: Methodology Matters – Upside surprise in PCE according to CPI?
- Granted, methodology does not have a very sexy ring to it, but a return-making edge may be hidden in the details.
- In this untraditional edition of the ‘US Inflation Watch’ we take a closer look at the dis- and similarities between Powell & Co.’s go-to PCE and the more popularly known CPI.
- Our models do in fact point to a likely surprise to next week’s PCE.
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