Upbeat Despite China Headwinds | 11/28/2022

Posted: Nov. 28, 2022, 7:46 a.m.

- Protests and lockdowns in China are seen as a headwind to start the week. Hang Seng – 1.57% today, but still +17% on the month.

- We continue to believe that the domestic economy is not as bad as many make it out to be.

- Atlanta Fed GDPNow Q4 estimate is 4.3%.

- Black Friday sales hit a record $9.1 billion, rising 2.3% versus 1% expected, Reuters and Adobe Analytics

- Even before Black Friday, according to Visa volume of credit and debit card transactions is very robust and has been all year; +11% in Q3 y/y, +9% in November y/y, and +146% in Q3 versus 2019, +147% in November v 2019. According to Goldman Sachs data.

- Credit usage at a record high does signal individuals are becoming exhausted, but we don't find it the precursor to a steep recession that many doom and gloomers are calling for. In fact, delinquencies remain very low. Seen in the chart below.

- Broader investing public acknowledges the Fed's tightening, but does not acknowledge recession precursors are also engineered

- Odds favor 50bps hike in each December and February, slower will stoke bullish tailwinds.

- Regardless, the 2s10s spread broke hard into Wednesday to -0.80bps, a record.

- 3m10yr hit a new low of -0.72bps, only December 2000 was lower. Seen in chart.

- Light at the end of the tunnel, many inflation components have peaked and begun to roll over

- Earnings may compress in the coming two quarters, but we believe estimates have overcompensated, now a lower bar to beat.

- Excessive negativity is a bullish tailwind, institutional Put-Call ratio is at a record.

- 90% of S&P stocks are above the 50-dma, not a sign to chase strength, but a sign that stocks are not going down like many believe.

- Portfolio management side, we remain active, fully invested, and trimming some on this rally, downside protected with Puts ahead of the holiday

- Commodity fund is short stocks for a trade in the near term from post-FOMC Minute’s strength.

- U.S. Dollar Index back to 11/15 low, lowest since 8/15.

- A bludgeoning across the energy complex is helping to underpin strength in the Euro, lifting their growth prospects. At the same time, a slower pace of Fed hikes is being discounted.

- Economic calendar has a slow start to the week, with only Fed speak in focus, which leads into Nonfarm Payrolls Friday. Today, St. Louis Fed President Bullard and New York Fed President Williams speak at 11:00 am CT.

fredgraph (45)

Income Quartile Credit Card Delinquency Rates

us 10-3m 11.28.22 2

E-mini S&P (December) / NQ (December)

S&P, yesterday’s close: Settled at 4032.50, down 0.50 on Friday and up 58.50 on the week

NQ, yesterday’s close: Settled at 11,782.75, down 80.00 on Friday and up 74.75 on the week

Bull-flag-like breakout played out through Friday, and both the S&P and NQ struggled at critical levels of resistance.
Battleground of support around the recurring 4000 mark, now aligning with Tuesday’s pattern breakout, brings major three-star support at 3997-4003.25.
Similarly, the NQ is again hugging the slightly readjusted and narrowed but recurring 11,729-11,747 level.
Multiple levels of support are highlighted below.
Close below, or decisive break intraday of, this major three-star support opens the door to major three-star support in the S&P at 3962.75-3968.25.

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