The Latest On The Global Economy: Holiday Lights In The US But Long Shadows Around The World
The global economy is not shaping up well for the bulls, and the current rally looks hasty and reversible. The volatility risk premium is pointing to a range-bound market over the next few days, while my technical reading of key stocks in the S&P 500 is neutral. Yesterday's cross-asset action brought one positive factor for US stocks. The US yield curve is falling and in the current context that is bullish. But there were also several negative factors across global asset classes. Copper is pointing to declining global GDP expectations. Inflation expectations are rising based on measures of Treasuries and TIPS. Expect the S&P 500 to fall modestly over the next few days.
The US economy is slowly moving into holiday season: the Atlanta Fed’s GDPNow predicts that in the third quarter growth halted, but consumer confidence number this week suggest a fourth quarter rebound is in the works. That’s a key reason earnings estimates rose last week at a 2-1 clip of revisions upward vs. downward (among the 100 largest firms), and rising estimates are what pushed the market to a new intraday high yesterday. But unless the GDP number out tomorrow comes in well above expectations, there will likely be little reason to take the market higher. Senate and House Democrats are on different pages so the stimulus will be less than expected, and the falloff in the global economy is getting serious.
Europe is reeling under energy uncertainty, and the inability to trust Russia. Far from being conciliatory, Russian giant Gazprom is now pressuring Moldova. And China is dealing with a more strategic US, as this week’s call between Yellen and her Chinese counterpart was deemed "pragmatic, candid, and constructive” until the FCC unanimously told China Telecom to shut down in the US. While the Chinese Communist Party is confident about letting growth fall while it attempts to socially engineer the country, that fall is bad news for investors.
My current market positions include a large cash position, and the following holdings: Activision (ATVI), Amgen (AMGN), Apple (AAPL), Johnson & Johnson (JNJ), 3M (MMM), Pfizer (PFE) and a small net short position in S&P 500 (the levered inverse ETF SPXU).