The Market Is Running Out Of Fuel

Seekingalpha2023-06-27

While the whole world is watching the fiasco of Putin's state system in Russia, I decided to once again give a brief overview of new information from the American stock market. I will try to be brief ...

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Cathy Live
·2023-06-27
Great Analysis! Thank you for sharing
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Hosay_hosay
·2023-06-27
[Miser] [Miser] [Miser]
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I will try to be brief ...</p>\n\n<a href=\"https://seekingalpha.com/article/4613532-market-running-out-of-fuel\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":".IXIC","symbol_name":"NASDAQ Composite","start_time":0,"source_url":"https://seekingalpha.com/article/4613532-market-running-out-of-fuel","article_id":"2346023063","we_media_id":null,"thumbnails":[],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2346023063","pubTimestamp":1687824074,"columns":[],"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"The thing is that the first of the above factors began to weaken. In his testimony before the House Financial Services Committee, Mr. Powell suggested that interest rates needed to rise to address U.S. economic growth and contain price pressures. He reiterated the Fed's determination to bring inflation back down to its 2% target and indicated that further rate hikes could be expected by the end of the year [against the previous hope-driven consensus]. He noted, however, that lowering inflation m","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{".IXIC":"NASDAQ Composite",".DJI":"道琼斯",".SPX":"S&P 500 Index"},"translate_title":"市场上的燃料快用完了","themeId":"","isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{".DJI":1.1,".IXIC":1.1,".SPX":1.1},"content_text":"While the whole world is watching the fiasco of Putin's state system in Russia, I decided to once again give a brief overview of new information from the American stock market. I will try to be brief this time. Of course, my previous Sell thesis for the general market has not changed for the last few days. It has only got stronger, and now you find out why.Let us first recall what exactly has been the fuel for the rally we have experienced since the beginning of this year. Earlier, I suggested that there were several reasons for such a strong, unidirectional upward movement, including:1) the expectation of a more dovish stance from the Fed;2) the growing liquidity in the capital markets;3) the hype and the Main/Wall Streets' reflections on how AI should change the world;4) rather weak consequences after the collapse of SVB and some other banks;5) positive expectations from future EPS figures [we have seen a lot of upward revisions lately].After identifying these reasons for myself, I tried to relate them to reality and understand how sustainably long they can fuel this rally. That said, of course, these factors cannot be ignored - at the very least, this can lead to opportunity costs or a lot of pain if you are a short seller. But looking at the dynamics of the strength of these factors is critical, in my opinion. And this is where several questions should arise for those who continue to view these factors with great bullish hope. Let's go in order.Why did the markets - S&P 500 (SPY) (SPX) (SP500) - take a break recently after their breathtaking rise? The thing is that the first of the above factors began to weaken. In his testimony before the House Financial Services Committee, Mr. Powell suggested that interest rates needed to rise to address U.S. economic growth and contain price pressures. He reiterated the Fed's determination to bring inflation back down to its 2% target and indicated that further rate hikes could be expected by the end of the year [against the previous hope-driven consensus]. He noted, however, that lowering inflation may require a period of below-average growth and some softening of labor market conditions.Okay, but what about liquidity? As far as I can see, the second driver - liquidity - started to weaken in from of our eyes, breaking the usual pattern of \"liquidity down - markets down,\" because the markets have not responded properly to this to date.Financial TimesAs Morgan Stanley's Mike Wilson recently noted [proprietary source], M2 particularly stands out among the bank's favorite liquidity measures. In October 2022, global M2 reached its lowest point, signaling a potential turning point for the markets. As anticipated, this led to a rally in stocks. However, it's now important to acknowledge that the current performance of the S&P 500 seems to have surpassed its historical correlation with global M2:Morgan Stanley [June 20, 2023 - proprietary source]Furthermore, Mr. Wilson notes that while the bailout of depositors by the Fed and the FDIC in March can't be considered a direct monetary stimulus, it did inject liquidity into the financial system. This injection of liquidity enabled banks to maintain their credit extension activities. However, according to Morgan Stanley's fixed income strategists, the issuance of Treasury bills and notes over the next 6 months will reach a substantial sum of $1.2 trillion. It's expected that a significant portion of this amount, approximately $500 billion, will be funded by drawing down bank reserves. It is important to consider the historical implications of such reserve drawdowns, as the equity market has typically not performed well in their aftermath:Morgan Stanley [June 20, 2023 - proprietary source]As we can see from the recent inflows to money market instruments, the problems many banks are having with deposits can only get worse in the foreseeable future.BofA [June 2023 - proprietary source]If so much money is flowing into the money market, it is not happening out of thin air, but is, in my opinion, primarily due to the \"bleeding\" of bank deposits. Therefore, it seems to me that the 4th driver I listed above is also quite weak at the moment.What about AI and LLM models that are supposed to miraculously turn our lives upside down? As I mentioned earlier, this hype has created a kind of bubble whose end is impossible to time. Again, I am not going to try to do that. But - and I think this is a very important point - it seems to me that the interest of the crowd is showing the first signs of weakening. One of the clearest signs of this is Google searches on the relevant topics, which started to drop sharply after peaking in April/May. We have already seen something similar in 2022 in the example of another technological trend:Google TrendsI am in no way comparing the applicability of LLM models to NFTs - they are completely different animals. Nor am I saying that LLMs will not have a positive impact on the economy. Of course, that's not the case. But aside from that effect, there are some other things that the stock market is reluctant to acknowledge, focusing only on the positive. Obviously, the waning of mass interest in ChatGPT should lead to a logical disillusionment.And the last driver, which also seems rather weak to me now, is the EPS upward revisions. I wrote about this last time, and too little time has passed since then for anything to change radically. I believe in Morgan Stanley's econometric calculations, which have already proven their effectiveness in 2022. According to the bank's model, we are waiting for a strong downward, not upward, revaluation of EPS figures for S&P 500 companies. So I think the risks to the bulls will continue to escalate with the multiple expansion, which, by the way, almost fully explains the large tech rally YTD:Shared by @MichaelKantro on Twitter [June 17, 2023]Your TakeawayAgain, I must warn you about the risks of my next Sell thesis. First, there is a huge amount of subjectivity in what you have just read. Second, I could be wrong about the overall effect of AI on the stock market - perhaps the bubble I see before me is not a bubble. Third, the momentum of the rally is still strong, and the recent weakness does not mean anything yet. I recommend you do your own due diligence before making any investment decisions. I definitely would not short the market - it's not for me.But despite the upside risks, I believe that the actual potential upside for the rally looks is too small to date. The stock market is running out of fuel in many ways - keep that in mind if you are active in tactical positioning or have long speculative positions.Thank you for reading!","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":766881446297664,"gmtCreate":1687849112918,"gmtModify":1687849501389,"author":{"id":"4116122953760472","authorId":"4116122953760472","name":"Cathy Live","avatar":"https://community-static.tradeup.com/news/ed116ae5e9a38e726cbc8d6208ca78f2","vip":1,"hat":"https://static.tigerbbs.com/7b75ce0c34afff716602792a5d0929dd","crmLevel":1,"crmLevelSwitch":0,"idStr":"4116122953760472","authorIdStr":"4116122953760472"},"htmlText":"Great Analysis! Thank you for sharing","listText":"Great Analysis! Thank you for sharing","text":"Great Analysis! Thank you for sharing","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/766881446297664","repostId":2346023063,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":766751840092400,"gmtCreate":1687839299963,"gmtModify":1687839304144,"author":{"id":"4109909455489530","authorId":"4109909455489530","name":"Hosay_hosay","avatar":"https://community-static.tradeup.com/news/b228fbc5c071c4bc7e948619f9ff7028","vip":1,"crmLevel":6,"crmLevelSwitch":0,"idStr":"4109909455489530","authorIdStr":"4109909455489530"},"htmlText":"[Miser]&nbsp;[Miser]&nbsp;[Miser]&nbsp;","listText":"[Miser]&nbsp;[Miser]&nbsp;[Miser]&nbsp;","text":"[Miser] [Miser] [Miser]","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":3,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/766751840092400","repostId":2346023063,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"hasMoreComments":true,"newsSizeData":{"likeSize":57,"commentSize":2,"repostSize":2,"favoriteSize":4,"likeStatus":false,"favoriteStatus":false}}