All Time High Expectations
Everything you wanted to know about this market is contained in this morning's Barron's report:
"Tesla knew going in to its Robotaxi event on Thursday there were high expectations it would deliver on detail. Investors were going to want timelines for driverless cars, dates, and possibly new products to get excited about. CEO Elon Musk was able to provide some of that. But it wasn’t enough"
Separately, chip maker Advanced Micro Devices unveiled a new chip aimed squarely at the booming demand for artificial intelligence hardware. Investors balked"
Both events would surely have been considered a success in different circumstances. But sky-high expectations ended up casting them in poor light"
The article goes on to explain that market valuations have now reached extreme levels just as we enter earnings season. Recall that the last earnings report was in July and back then ALL of the Mag 7 Tech companies disappointed on earnings.
Here we see the Nasdaq peaked at the beginning of Q2 earnings season.
Three months ago this week:
Another problem weighing on the market - also mentioned by Barron's this morning - is that rate cut expectations have collapsed over this past week. It started with a much stronger than expected jobs report last Friday and then on Thursday (yesterday) we got a stronger than expected CPI report.
"After Thursday’s inflation data, the Federal Reserve looks like it has little reason to lower interest rates quickly. Future rate cuts are probably already priced in"
In other words, the entire catalyst for a 2024 stock market rally - Fed rate cuts - is now "priced in" to the market at extreme valuations going into earnings buyback blackout ahead of the election. Why would anyone buy between now and the election?
They won't.
Last week I said that Chinese gamblers would come back from their week holiday and get monkey hammered. And I was right.
As I showed on Twitter, every time the Hang Seng had this level of two way volatility, global markets crashed soon AFTER. Six out of six times, with no exceptions.
The Chinese government has now called for an emergency press briefing on Saturday, so we'll know by Monday if they fixed the problem:
"Analysts said unless the message was reassuring, more wild turns were likely to follow."
“The Chinese dragon, in the process of rising, is often not a straight flight to the sky"
That explains everything.
Here in the U.S. we are seeing some very ominous indicators ahead of the election. For one thing the VIX remains highly elevated considering the S&P 500 is at an all time high. Why is that happening?
One must assume it's because there has been a huge reach for risk exposure amid record market risk which has made hedging totally unaffordable ahead of earnings and the election.
In summary, global policy-makers have baited the hook with an amount of stimulus that is NOT forthcoming.
The question on the table is why do all these policy-makers believe that it's a good idea to generate mass margin calls to kick off a global deleveraging event? Do they want to contribute to the economic pain that their previous stimulus already unleashed? Everyone seems to have amnesia when it comes to financial markets. They forget that it was record monetary stimulus (QE) that caused a record asset bubble, so when it bursts they immediately assume more stimulus will fix the problem.
They are stimulus junkies who are about to be disappointed by this latest imaginary "all time high".
