The Market: Assessing the Bull Case
Discussion
The bull case for stocks is summed up well by Jason today in the xweet below:
Israel-Hamas ceasefire and a relatively dovish Powell. Quick assessment of each below…
Israel-Hamas Ceasefire
I’ve covered Israel-Hamas more effectively than most - not because I’m smart, but because I set ideology aside, didn’t let global leftwing politics cloud my assessment, and applied basic common sense logic to the situation (i.e. 110% of the Israeli defense apparatus and citizenry has communicated in wide open forums that Israel will do whatever it takes to dismantle the entirety of Hamas). In my assessment, this video out just today is the single best summation of the Israel-Hamas war that I’ve seen. In short: no ceasefire, high risk of international escalation, and the international community needs to get off its collective butt and actual figure out a post-war solution for the Palestinian citizens they supposedly care so deeply about.
There is no ceasefire. Bullish pillar #1 gone.
Relatively Dovish Powell
As I recently said on Xwitter, I think the next six months of FOMC meetings are going to be incredibly boring. Each press conference, Powell is going to get up and reiterate “tighter for longer” monetary policy without a scintilla of dovishness, as he is visibly pleased with the recent tightening of financial conditions. He’s getting what he wants, and he’s not going to risk another easing of financial conditions with inflation expectations relentlessly challenging him to the upside. Very simply, he is going to grind the economy and financial markets into the ground. That’s the broad FED framework for the next six months.
To Jason’s point about him coming out relatively dovish tomorrow, Nick Timiraos told us very clearly today that is not the case:
“The compensation report [today’s ECI report] offers little to change officials’ view that rates will need to stay at high levels well into next year.”
This guidance from the Fed is part of a globally-coordinated effort to reiterate to financial market participants that rates will not be cut until mid-2024 at the earliest. Just today the ECB was out hammering home “tighter for longer”.
There is no relatively dovish Powell. Bullish pillar #2 gone.