Peter Boockvar

While of course some important details are still needed to see how the make up of Congress will look like, I’m sure you’ve gotten some data mining reports on how stocks perform in the year after the midterms or what happens depending who has control, or some other election based study. I used to be an ardent annual reader of the Stock Traders Almanac (and Jeff Hirsch is a friend) that talked about many of these type of historical trends among other seasonal patterns that tend to repeat. While I still enjoy the book, the only macro pattern now that matters is that of the Fed and whether they are easing or tightening and thus I believe we can toss out all the post midterm market research prediction reports. 

Ahead of CPI today, again the question is to what extent does the drop in goods prices offset by a further acceleration in services prices. You can visual the point in this chart where the white line is services inflation ex energy, up 6.7% y/o/y (off the right axis) in the last print and the orange (off the left axis) line that is measuring core goods prices up 6.6% y/o/y.

We get a slew of Fed speakers post the CPI report and the message will likely be uniform in that it’s time to slow down the pace of rate hikes but with the still needed vigilance in cooling inflation. Non voting member Evans (but will vote next year) said late yesterday, “I do think there’s benefits to adjusting the pace as soon as we can…If you don’t begin to think about adjusting the pace, taking account of lags, and you just keep increasing rates by a large amount every time you get a disappointing report, next thing you know, you’re at a very high federal funds rate.” And for markets and the economy in 2023, it’s no longer about how much will the Fed raise (as all of the hikes are now backed in) but how do we live with them at these higher levels than we’ve been used to. 

Yesterday Investor Intelligence said Bulls fell by .6 pts to 35.2% but Bears were down too by .9 pts to 36.6%. AAII today said Bulls were down 5.5 pts to 25.1 after 3 weeks of gains. Bears jumped 14.1 pts to 47 after dropping by 23 pts in the prior two weeks. The CNN Fear/Greed index closed yesterday at 54, basically smack on Neutral. Bottom line, while the AAII is tilted to the Bears, there is nothing extreme here and with the other two metrics pretty neutral, there is nothing to rely on here for conviction on short term market guidance. In other words, the bear side is not extreme enough to be confident in any contrarian rally like it was in late September. 

China reported its October loan data this morning and there was a sharp drop in lending. Aggregate financing was 908b yuan, almost half the estimate of 1.6T and well below the 3.53T print in September. Of this, bank loans were 615b and M2 slowed to an 11.8% y/o/y rate of change from 12.1% in the month before and vs the estimate of 12%. Part of the lending drop is seasonal but its clear what’s going on in the Chinese economy where on one hand banks are typically pushed to lend but on the other, the demand for loans is smaller due to the challenging economy. This is also true for the mortgage market where the demand for property has shrunk for reasons we know. Chinese stocks were down as is the yuan on reports of more covid lockdowns, however seemingly more targeted and a clear change in approach by the authorities in terms of how disruptive they are.