NFTRH+; Insofar as I’d be a bull…

Personally, I am not convinced that this is still just a routine correction in the US stock market. But as certain table legs get kicked out from under the market, like small caps, richly valued growth and even medical devices and biotech, one thing I am watching is a massive rotation by Global Fund managers (I do not have permission to share the actual data) out of Tech, Telecom, Bonds, Healthcare, etc. into Banks, Industrials, Materials, Commodities, etc. (i.e. the reflation/inflation/cyclical stuff).

In other words, the HERD is flocking into these areas at a time when inflation expectations have been dropping, negative divergences (to the inflation trades) we have reviewed are in play and well, the Fed maintains a hawkish pretense (at least).

It’s the old ‘expectations management’ game and it involves turning the herd away from its march on the Federal Reserve with pitchforks and torches, to instead worrying about its capital. In other words, when the pendulum swings far enough in the other direction – the disinflationary direction – and market liquidity becomes a concern as the herds seek the shelter of cash, then the Fed is invited to go back to its dovish, or at least not hawkish, ways. You have to invite the vampire into your (macro) house. That does not happen with inflation expectations ramped up and the masses concerned about inflation.

So my point here is two-fold.

  • Sure, this could be the beginning of a well-earned bear market of some kind in stocks (and thus a good macro signal for gold and gold stocks).
  • But insofar as the market is to resume bullish at some point, the herds are in the cyclical, inflationary, reflationary stuff, chasing long-term yields and the macro backdrop they present. The play could be ongoing for a while yet (CRB 270+? 30yr yield @ 2.5%?). But insofar as a bullish market view would be concerned, I’d be thinking about the Semi sector getting hammered (to projected support) and some of these Tech/Growth names getting killed out there rather than chasing the inflation stuff.

It’s a potential contrary setup, at least.