The Market
Annual Technical Bias: (SPY 200 day): Up
Annual, January: Up
Monthly Technical Bias: QQQ 285, Up
Weekly Technical Bias: Up
Next Day Technical Bias: Up
EPS Fundamental Bias: Down
Fed Fundamental Bias: Up
Overall Medium Term View: Bullish
Overall Short Term View: Bullish
Generally publicly you've seen we've been pretty bullish.
We've been that way in our service since late 2022 after being bearish for most of 2022.
I changed my real-time Fed thinking to up from neutral for the near term. They are slowing down and not hurting the economy and inflation now. Gradual is good for a surprise growing economy.
I'm considering changing my EPS to Neutral or Up from Down because many companies outside and within tech are reporting just fine and the discountable timeframe of 9-12 months there should be earnings growth again, even sooner, starting in Q3. Action, for sure has held up much better than the market thought. We thought stocks would hold through a rough earnings season, which they did. That's a good sign for the market.
Today's CPI
Yesterday (to subscribers) I expected .4 and .4. It was .5 and .4. Finger-in-air, tea-leaves, chaimbotGPT was a little off. I'm going to have to get this thing repaired.
Frankly, we had enough evidence through January data that said this print should be higher than the one reported in January. That led us in the right direction.
That's the print. There's 'predict' and 'react.' 'Predict' includes what's the data going to be and what's the reaction going to be. 'React' includes what was the data and what was the reaction.
Bad print + Good reaction (market not getting slammed) = bullish
You know my elegant formula.
Bad news + Good action = Bullish.
I said minutes after the print in chat (to subscribers) this formula confirming what I said yesterday that even if the market is down it should hold and this was setting up bullish.
I would have thought down 3-4% on this type of print was normal but really anything better than down 1% was good. Well flat on an upside surprise inflation number is good action = bullish.
How'd The Market Hold Up?
There was a WSJ preview over the weekend 'what if' the economy never lands, meaning the economy surprises to the upside in the face of excruciating Fed hikes?
Well that's the surprise that this mostly-bearish-sentiment market said 'no way, never ever.'
So the economy holding up is a big surprise that bears need to unwind their thesis, cover and reset.
Along with that, as I've been saying, a growing economy with some inflation and some high rates is just fine. That's especially so with so much bearishness out there that needs to unwind.
What's the market always worried about?
The Fed in isolation is not the concern.
The market quakes worried that the Fed will send the economy into a tailspin. Well if the Fed is not sending the economy into a tailspin, guess what, less reason to be worried.
And if a series of 75 bp hikes, one after the other didn't budge this bullish economy, coming measly 25 bp hikes (flies on the windshield) aren't going to stop it.
Yes there's a lag to the Fed having an effect on the economy but this economy is bouncing back from a historic Pandemic. So there's some wind at our backs.
Markets and economies cycle. The Fed tries to mess with markets to affect CEO opinion. If markets get hit, CEOs say, 'uh oh maybe we should order less.' If markets jump, CEOs say, 'uh we have to order or we lose share.'
So the market is the tail wagging the dog. And if the Fed can't keep this economy and market down, CEOs are going to be in unison, 'what recession, we need to order.'
And that's how cycles work.
A lot of it is based on market sentiment feeding into on the ground sentiment at companies and buying habits. Leaning one way too far can spring things back the other way. That's where I think we're headed; spring.
Economy Fine
The Street's again way below GDP Now this quarter too. Street is (sorry Street) sleeping.
Analysts hoping like the 'bowling lean' that if they keep low expectations maybe it will get the economy down like they say.
Nope, the surprise is springing a coil of CEOs to soon say, 'uh oh.'
Inflation's Fine
There's good inflation and bad inflation.
Supply chain disruptions means everybody's costs go higher. But this inflation has changed to pricing power.
Pricing power. Aah. Maybe you haven't heard about that lately but it's a magic word to companies, and... margins.
Margin hits can turn into margin gains.
Pricing power is the result of inflation hanging on and companies catching wind that, hey guess what, why eat this, let's pass it along. And when they see they can pass it along, they pass along a little more. And in a surprise up economy, they can pass along a little more and get a little margin.
How will margins look for EPS when this year's pricing power laps last year's supply chain margin hits. They'll look good.
Things are always in motion.
I think this market is digesting that, 'you know what, why does this have to be bad. Surprise economy, pricing power, slowing Fed, hmmm.'
Slowing Fed
The above is how I think the Fed is looking at this and why they are not biting finger nails over this print.
Which way is inflation going in the Fed's eyes? It's coming down, steadily.
They've done a lot.
5% inflation and 2% real-GDP = 7% growth. 5% Fed rates are fine. The economy can still grow with that 7 - 5 = 2% let the economy run gap.
But 2% surprise could grow to 3%. That's how momentum works. You heard what CEOs were thinking as I wrote above.
Fed officials came out today saying this print was inline meaning they don't need to reaccelerate hikes. I do think the Fed is starting to think about an election year coming.
They don't want to wreck things and need to go slowly.
More important than the Fed itself, historically, is what the market thinks about the Fed.
CME futures didn't really budge on today's news.
Small changes above meant the market didn't think the Fed will change much.
Here too, tail wags the dog, the Fed historically actually used to use this to calculate their own thinking. This Fed is much 'smarter' (not so humble) than past Feds and want to battle the market's thinking. But markets are very very smart. And past, more humble
Fed committees used to use this data to guide them, correctly so.
For now risk assets have a window, because of that to catch a spark, SPY (S&P 500), QQQ (NASDAQ), Bitcoin (BTC), possibly Gold (GLD).
I think Risk on.
I said in chat that SPY above 419 and technical upside to 470s.
PS, you saw Bitcoin back off after our post last week. Based on the Fed now I think that has a chance to change for the good.
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