The Bulls Maintain The Show Must Go On But The Audience Is Starting To Fall Asleep — The Latest On The Global Economy

Cheers for the resilience of the global economy have grown tired as data across nearly every region of the world shows the hangover from higher interest rates and dampening liquidity. Only a tight labor market girded by over-stimulus from the pandemic years is keeping the global economy from falling to zero growth, and that dynamic can only last if interest rates become stimulatory. The Fed isn’t clapping for that line and soon the equity bulls will stop performing. But for now momentum rules as the volatility risk premium points to a higher market over the next few days, while my technical reading of key stocks in the S&P 500 is bullish. Yesterday's action across fixed income, currency and commodity markets signified no meaningful changes to the global macro environment. Expect the S&P 500 to rise modestly to 4308 over the next few days before coming down hard.

The global conomy continues to stutter its lines while the play goes on and forces many critics to reluctantly jump on the bandwagon. Where once China was seen as the engine of growth now Japan and India supposedly will do the trick, despite obvious headwinds. Where once Europe was riding high on great weather and a brilliant return serve to Russia’s vicious attack now the feeling is the US will rescue the West and avoid even a soft landing as AI powers both human and computer confidence to new highs. Yet recent data fails to validate the ebullience, instead setting us up for a rocky end to Spring and a hot and stormy summer.

China’s exports were much weaker than expected and so too was Japanese consumption data, putting paid the ephemeral notion of that moribund nation springing to life. Europe is staring recession in the face, as both declining global trade and manufacturing activity take down a more robust services sector, a mirror image of the US. And while the US labor market is actually getting tighter the bottom strata is showing such stress that even value retailers are running into problems and joining the likes of Macy’s. As interest rates ratchet up in preparation for a higher Fed Funds Rate so too will the opportunity cost of holding equities and a bullish view on the global economy. Expect the melt-up to lose all fire in the coming weeks.

My current positions include a large cash position, 3M (MMM), Pfizer (PFE), a moderate position in the levered ETF UPRO and a slightly smaller position in the inverse levered ETF SPXU, all of which net out to a small long position in equities.