Good morning contrarians!
Stock futures are flat after a day of solid gains. The Nasdaq led major indexes and was up almost 2% on the day. The S&P 500 and Nasdaq are on track for their second straight winning week. Semiconductors outperformed even regular tech stocks this week, apparently as investors re-discover appetite for riskier assets.
State of Play
As of 0630 this morning, there is no movement at all in U.S. indexes, with each up or down a couple of basis points. It’s been the same story in Europe and much of Asia, though stock markets in China and Hong Kong are down quite a bit today. The Hang Seng Index is off more than 2%.
Nothing noteworthy to report in commodities movement other than nickel being down 6%. WTI crude is down less than 1% to trade around $111.50/barrel. The European Union signed a gas deal with the U.S. as it seeks to cut its reliance on Russian imports.
Bonds are seeing a bit of selling, with the yield on the 2-year down 4bps to trade around 2.16% whilst the 10-year is down 2bps to 2.37%. Cryptos are seeing some bids with bitcoin up almost 3% to move past $44,000.
After weeks of volatility over the Russian invasion of Ukraine, a calm has descended on markets, serving as inspiration for today’s cover art. More on this in the bottom line.
Economic Data
Another slow day of economic data. Pending home sales is the lone noteworthy item, out at 1000. This is another cog in the whole real estate transaction cycle, measuring homes that are under contract but have yet to close. Basically just another data point for economists and real estate junkies. Like I said, a slow day.
For what it’s worth, economists expect the figure to have increased by 1% month-over-month in February. This after a decline of 5.7% in January. Earlier this week we had new home sales come in short of expectations. Mortgage rates are going up, now well north of 4% for 30-years. You figure that has to hurt appetite for home purchases, and that that is very likely to have an impact on the U.S. economy.
The University of Michigan does update its consumer sentiment reading for March, but this is much less of a deal than the preliminary figure that was released a fortnight ago. There are usually just some adjustments around the margins. Did I mention it was a slow day?
A bunch of Fed speakers are on tap again today, but that’s been true for every day this week. The market stopped paying attention after J. Powell’s warning of being super-cereal about inflation (and even then only reacted for less than a day).
The Bottom Line
Whatever concerns there were about supply chains due to Russia’s invasion of Ukraine appear to have faded. Indeed, Russia-Ukraine is kind of tired news already. Investors have moved on. For now.
Watch this space though. Yesterday at my panel, economist Carl Weinberg spoke about second-order effects of the Russian invasion that he expects will cause more problems and potentially lead to broader panic in markets. Unfortunately I have yet to receive the recording and there was no media coverage of the event. As soon as they are in my possession I will share them with you. The broad gist of it is that Russia will become a pariah state but not without bringing down a financial (or other) institution that will cause chaos. The era of globalization may be over (though this is not just Weinberg’s argument as it was batted around quite a bit on CNBC yesterday and Larry Fink and Howard Marks have made comments to this effect as well).
It’s worth keeping in mind that the onset of almost every bear market is accompanied by dead cat bounces, where stocks rebound temporarily and things look like they are returning to normal. You saw this in 2008, when Bear Stearns’ liquidation was followed by a summer of relative calm before the Lehman moment that September. The dot-com bubble had its first implosion in March 2000, but that too was followed by about six months of rallies. Russia-Ukraine may turn out to have been a giant buying opportunity like the Covid Spring of 2020. Or it could be more like Bear Stearns or the 2000 dot-com implosion. Or maybe something else entirely.
Nobody knows the answer to this because nobody can see into the future. There are only educated guesses. Do your own research, make your own decisions.
Calm Seas, for Now: Daily Contrarian, March 25