The Latest On The Global Economy: Inflation Worries Are Paced By GDP Worries

Profit predictions remain on track in the US but it’s increasingly looking like a disconnect from the global economic reality. 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 was also one negative factor across global asset classes. Oil is pointing to stagflationary conditions. Expect the S&P 500 to be range-bound over the next few days.

In China commodity prices are driving inflation while in Europe it’s energy prices that dominate, but even more alarming are GDP trends. China is seeing loan demand fall while Germany is seeing its exports shrink. Among EM India is one of the few bright spots, and that leaves the US to shoulder the burden for outperforming economically. To date labor market data mildly supports US growth and assuming the Democrats get more stimulus legislation passed, there is good reason to see growth stabilize at current low levels. But that wouldn’t normally be enough to power the equity markets higher, since valuations are already high, and it’s why I see a correction coming after one final Santa Claus rally.

My current market positions include a large cash position, and the following holdings: Activision (ATVI), Amgen (AMGN), Apple (AAPL), FedEx (FDX), Johnson & Johnson (JNJ), 3M (MMM), Pfizer (PFE) and a small net long position in S&P 500 (the levered inverse ETF SPXU and levered ETF UPRO).