War Concerns Trigger Up-Moves in Oil and Gold; U.S. Equity Market Volatility Remains Intact
What does it mean when consumers stop eating wings and drinking suds?
Key Takeaways
FOMC Minutes in Tension with Powell’s Presser: One reason why markets did not respond to the surprisingly hawkish FOMC minutes (which revealed that “several” policymakers would have liked to have signaled that a rate hike was on the table) is because we all know from the post-meeting press scrum that Jay Powell said that a policy tightening was nobody’s base-case scenario.
The Vibecession Continues: We can tack on another K-shape to the economy: our survey-based GDP model was consistent with real growth in Q4 of a little less than +1% SAAR, and we know the consensus for tomorrow’s number is clustered around +3%. And the survey model is, for the time being, consistent with real GDP growth of around +1% SAAR for Q1 — even as the momentum build-up so far in the quarter from the hard data towards +3%. Again, this points to the “vibecession” feel to this economy where sentiment is weak, but the incoming high-frequency reports have been upbeat
Barbell Trades Benefit from Mean Reversion: Time to shift to one of my favorite trades, which is to be long the equal-weight S&P 500 and barbell that position with a short position in the cap-weight index. That has generated a near-5% total positive return so far this year. It is all part of the classic Bob Farrell Rule #1 on mean reversion. We could be in for years of a correction of a major extreme in that, from the introduction of ChatGPT in November 2022 through to the end of last year, the equal-weight index lagged behind the cap-weighted S&P 500 by an incredible 40+ percentage points.
