McElligott Maps The Macro
Markets are forward looking and the near universal adoption of the The Great One's famous skate-ahead-of-the-puck mentality by people who wouldn't know a tired cliché if it body checked them, means every nascent macro narrative is subject to relentless front-running.
As a result, macro themes have a tendency to become consensus trades long before they're borne out, and very often before they have a chance to manifest in the data.
Currently, the consensus narrative still revolves around the no
Heisenberg seems to be saying there’s a lot of FOMO (fear of missing out) going around.
I don’t think central bankers around the world pay much attention to “the market’s” opinions. You see those opinions all the time, people saying what they think the central bankers should do.
Those opinions don’t matter, what matters is what central bankers actually do. And they have been fairly explicit in saying what they’re going to do, so there you have it.
Moreover, I’d favor what “wealth management” folks are saying. Reason being – They have to be right. If they don’t preserve a client’s wealth, they’ll be fired. A strong incentive, so to speak. Just sayin’
Central banks absolutely pay attention to the market’s opinion. Not so much in 2022 given inflation realities, but even there, you saw a constant dialogue between Timiraos, the Committee and STIRs (and not necessarily in that order) with everyone trying to get on the same page. During the post-GFC era, the market’s opinion was almost all that mattered to central banks, particularly beginning with the September 2015 FOMC meeting, when Yellen postponed liftoff amid the fallout from the yuan deval the prior month. Also, STIRs (and markets in general) can (and do) corner policymakers by leaning so far in one direction that failing to bend the proverbial knee risks adverse consequences. As far as wealth managers, some of those stodgy folks can hang around for decades while habitually underperforming. Mom and pop aren’t going to fire Bob Johnson, wealth manager, because Bob underperformed SPX by 200bps in an up year. A big hedge fund, by contrast, might have to close the doors if something goes too terribly wrong.
Also, Bob Johnson, random wealth manager, is irrelevant to the Fed. Hedge funds, on the other hand, aren’t irrelevant. Depending on the circumstances, their positions may need to be bailed out, particularly if Treasurys are involved. Just ask March of 2020. Nobody cares what wealth managers think, unless you’re talking about SWFs or something like that.
All I know is these wealth management guys are all leaning towards the S@P 500 bottoming out somewhere around 3200-3400 this year. If that doesn’t happen maybe stodgy old Bob will get fired and come looking for you.
Dana –
Thanks for your hopeful thoughts. I’d like to know what the bottom will be. And your note inspires some thoughts. In trying to imagine what’s ahead, I still have this aura of uncertainty and ambiguity hanging over me, but it’s difficult for me to actually be pessimistic about stocks.
What encourages me is a hard fact: In March 2020, I saw the S&P 500 index quoted a just a touch over 2300. It wasn’t long ago. It was the beginning of the pandemic, which is mutated, but still present.
I’ve placed my bets going into this 2023. Like you, I don’t foresee the SPX going anywhere near the pandemic lows. I’m betting on promising companies that are as low as (I think) they’re going to go. I’ve sold some loses.
Everything up to now – selling the losses and making the picks – has been easy. Now comes the uncertainty and the waiting for these (hopefully) choice, small-cap growth stocks to grow and flower. I want to see the war over in Europe. I want to see a world of stability and calm. But that’s not going to happen on my schedule, unfortunately. That just the way of the world right now, and I can’t do anything about it.
I hear quite often the quote “the stock market is not the economy”. But with central banks paying attention to the market’s opinion, might the stock market have more to do with the economy than the quote implies? It certainly has seemed that way for the past 14 years anyway.
My name is not Bob and I am not stodgy! But nobody cares about my opinion, except my clients and a small number of followers and that is how it should be.
for me this just confirms that we’re in “no person’s land” right now, and will remain so for the foreseeable future…if our central bankers admittedly don’t know what’s going on (“One way to say it would be that I think we now understand better how little we understand about inflation,” ) why should the rest of us…? …there are myriad possibilities what may unfold over the next few to several months imho …
“The fixed-income market’s desire to get bulled-up on ‘pivot’ trades seems a bit too preemptive [as] leveraged funds and macros… keep getting their hands blown off by the current surprise growth resiliency across major economies, as well as increasingly punitive negative carry/roll in holding these positions.”
This quote threw me a little. How are fixed income markets trying to get “bulled-up” on any pivot trade? Does he mean fixed-income investors are waiting on a peak terminal rate before wading back in?
When rates go down, bonds go up, so bond traders are going long now–getting “bulled-up”–in anticipation that the pivot to rate cutting is coming soon.
This is what I would like to know-
What is the $4.3T of cash, that is currently sitting on the sidelines, going to do in 2023?
You can’t time the market… but don’t fight the fed. Pretty much all I know.