Control Panel: Shift toward risk assets

The markets have absorbed the message that the Fed won’t cut the fed funds rate very soon. The consensus of the options market is that the first quarter point rate cut will be in June 2024.

After a couple of days of sulking, the stock market returned to its recent bull run. Bond prices are falling (causing their yields to rise). The entire Treasury yield curve shifted upward last week.

The trade is strongly risk-on. The Fear & Greed Index is in extreme greed. Stocks and junk bond prices are rising while Treasury prices are falling. Junk bond spreads are at around the long-term “non-crisis” average (this is an eyeball estimate).

The economy showed slowing in some areas but there’s no recession in the immediate future. The Atlanta Fed’s GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2024 was 2.9 percent on February 16. This is a respectable, sustainable level of GDP growth.

Productivity growth was good for the last couple of quarters but this is a very noisy series so it may not have much impact unless it’s sustained. Theoretically, better productivity enables faster real GDP growth without inflation. It remains to be seen whether higher productivity (from AI, robotics, etc.) helps or harms the economy since workers may be laid off.

America’s Economy Slowed—It Probably Won’t Stumble

Retail sales and industrial production both dipped in January, but there were some encouraging signs

By Aaron Back, The Wall Street Journal, Updated Feb. 16, 2024

The U.S. economy took a breather in January following brisk growth at the end of last year, but it remains fundamentally healthy.

Retail sales fell 0.8% in January from December, the Commerce Department said Thursday—much worse than expectations for a 0.3% decline. Also Thursday, Federal Reserve data showed January industrial production edging down 0.1% compared with expectations for a 0.2% increase. … [end quote]

Consumer savings are now lower than in 2019 as the Covid windfall has been spent. The personal savings rate has dropped while consumer loans are rising rapidly. It’s hard to say how much longer consumer spending will hold up. (About 70% of GDP.)

It has been 77 trading days of upward trend since the S&P500 reached its most recent low on October 27, 2023. This parallels the increase in margin debt. The strong bull run has carried the CAPE higher into bubble territory.

Barring surprising news, the markets seems to be in a stable trend of rising risk assets and rising interest rates. At least for the short term.

The METAR for next week is sunny.



I’m liking (non-fab) chip stocks, ARM, AMD, NVDA. AI is chip hungry!

The Captain


At some point, seasonality comes into play. Might be now it might be two months from now. I do not know.

Add I do know if there is seasonality it has to bottom out between now and some time in May. When the market rolls over is not clear. Might not roll over.

The end of this chart pattern is really strange.

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But isn’t the seasonality term “sell in May and go away”, why would it bottom before then. I suspect with the tightening of the consumer that we would start to see this in earnings mid-year.

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Why would professional money managers misguide the public?

I doubt they would. Sarcasm

True. I think they want retail to buy in more before institutions get out though. Seems they are reducing their money market funds still, that money must be going to equities.

The peaking yield curve is showcasing a market top. Perhaps the historical April treasury auction will show that there is no appetitite and becomes the catalyst for a correction.