Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets. It is Friday, March 14.
State of Play
Stocks got beaten up yesterday. Tech saw the worst of it, with the Nasdaq dropping 2%. The bigger news was the S&P 500 entering correction territory, defined as a drop of 10% from the all-time high. Ugly!
As we eye our board of indicators for signs of direction at 0545, it looks like risk appetite is re-emerging. Whether that is subject to swift reversal (aka the dreaded ‘dead cat bounce’) remains to be seen:
Stock index futures are rebounding, led by tech. The Nasdaq is up 1.1%. S&P 500 futures are up 0.8%;
Cryptos are treading water. Bitcoin is unchanged trading around $83,000, pretty much where it’s been for a couple of days;
Commodities aren’t doing much. WTI crude oil is up 1% to trade north of $67/barrel again. Copper is unchanged;
Bonds aren’t really moving either. The 10-year yields 4.30%.
Today’s Known Events
It’s a slow day with little to detract from the narrative. We have the University of Michigan’s Consumer Sentiment survey at 1000. This rarely gets noticed much by the market. Would not expect today to be any different.
There is an economist survey number for this: 64.3 is what’s anticipated. Effectively unchanged from last month’s 64.0. The University of Michigan also polls consumers on expectations, current conditions, and five-year inflation expectations.
Judging by yesterday’s market activity, the market does not care at all about inflation expectations anymore.
The Bottom Line
It turns out our caution over the drawdown in consumer staples stocks was warranted. Investors simply aren’t keen on risk assets right now and a couple of soft inflation prints did nothing to change that. Welcome to the correction. The Nasdaq of course has been here for a few days already. Now the S&P is as well.
The financial media (and social media) this morning will be full of “here’s what happens next” stories. These will be based on records of previous corrections. All can be ignored unless you subscribe to the belief that past performance predicts future results.
Nobody knows what happens next. What we do know is that available economic data is not pointing to a slowdown. There are a few secondary indicators that things aren’t rosy, but one can always find secondary indicators. Things like employment and consumer spending are simply not pointing to a slowdown. Period.
Of course that can change. Maybe it will change. Maybe the people predicting a downturn will be proven right. But it’s just not showing up in any of the main data points right now.
So maybe, just maybe this is a buying opportunity. One needs a strong stomach to wade into choppy waters like this. It is not without risk. But risks can also bring rewards. The market is not always right. Maybe this is one of those times when it is wrong (another one, the most recent one being last summer. Oh by the way, back then we actually had labor market data that was a point of concern).
Housekeeping
Obviously this is not investment advice (duh). Do your own research, make your own decisions.
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