Published January 13th 2023

Daily Brief - A bad, bad chart

TLDR : Leading indicators of growth in the US look…really bad. At least inflation came in easy.

ism services new orders pmis

Growth and Inflation

Leading indicators of growth and inflation are plummeting.

The New Orders chart above in particular looks fairly terrible. It shows the Service component of the ISM survey, which is usually fairly more upbeat, hovering well above 50. A 45 reading rings alarm bells.

CPI came in precisely along consensus and that provides some fuel for the longs.

However the release is not enough to hinder a hawkish Fed which might consider the risk of sticky inflation too elevated, to stop the hiking cycle in its tracks.

In fact, they said as much. As long as the job market stays resilient, they will accumulate rate hikes - which allows them to cut more in the next recession.

Stay tuned for turbulent markets.

The Rangefinder index

The Rangefinder index is flirting with its top range, which could lead to an inversion in the next week or so - see the big red arrow below. We’ll keep you updated if something happens. Learn more about this index here.

Click to enlarge

What does the market look like?

The last mini rally leaves us unfazed - amongst its causes we see a lot of bullish CPI frontrunning, plus the extended short positioning. The overall picture remains questionable still.

cpi meme

🐂 What’s bullish?

  • 💸 Falling Inflation. Inflation has come down and leading indicators like Input Price PMIs suggest it will continue to fall.
  • 🤼 Short Positioning. S&P 500 Futures Positioning remains short at -22.2% even after the recently positive price action.

🐻 What’s bearish?

  • 📈 Weak Economic Growth. Growth looks shabby across the world, with US ISM PMIs collapsing: Services New Orders imploded in Dec and Manufacturing New Orders keep grinding down.
  • 👩‍💼 Dropping Earnings. S&P 500 Forward EPS keep making new lows at $226.86.
  • 🗓️ Bad Seasonality. S&P 500 Seasonality is bad for the next 3 months, hovering around flat.
  • 🏷️ Expensive Valuations. Valuations are expensive. S&P P/E at 17.3x with dropping PMIs and earnings is not great.
  • 🔀 Bearish Leading Indicators. The TOGGLE Leading Indicator is in negative territory. And the RangeFinder is heading towards overbought levels.
  • 🏦 Hawkish Fed. Fed-speak maintains an awkwardly hawkish tone. After coming in late for inflation, the Central Bank does not want to be seen as swinging too quickly

🗓️ What’s next? After PMIs and CPI we’re looking at i) the earnings season entering full swing and ii) FOMC on Jan 30th-31st.

In conclusion?

We’re leaving this paragraph as a sticker “We said it in the past, we’ll say it again: range-bound markets. It’s all warm and fuzzy when inflation cools down, but high P/E + falling EPS is no good.”

Idea Spotlight: Nike

Macroeconomic conditions (activity and inflation gauges) have deteriorated substantially.

Nike often outperformed in this environment as expectations for policy easing and macro outlook brighten.

Read full insight here!

nike price chart

Daily Brief - A bad, bad chart

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