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Ted Darling Profile picture
@tdarling1
Jan 15, 2023 • 21 tweets • 12 min read • Read on X
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🐻♉️↗️↘️↔️⚠️🚩🔺🔻🧮 💰

Macro Review 🧵
01/15/2023

1/11

Core #CPI running at +3.1% SAAR confirmed #Goldilocks for Q422 and catalyzed a 🚀 in equities, metals, and hydrocarbons

#Core CPI - 3-month SAAR
Dec - 3.1%
Nov - 4.2%
Oct - 5.7%

Chart: #CoreCPI 5.7% 🔻
1a/11

Despite all the recession talk - including my own, the @AtlantaFed #NowCast is projecting Q4 growth of +4.1%, an acceleration.

Growth 🔺 + Inflation 🔻 = #Quad1 #Goldilocks

Chart:
2/11

While #Quad1 #Goldilocks may be good for risk assets, it’s decidedly poor for the $USD, which continued ↘️ and took out the 50% retracement level of 102.12

Chart: $USD -1.64% (w) -9.94% 3M = T = Trend
3a/11

With a -0.76 correlation to the $USD over (T) duration, $GOLD +2.78% continued to 🚀 and is now +18.7% off the October lows and VERY OVERBOUGHT

Chart: $GOLD +5.23% YTD
3b/11

Dr. $COPPER turned decidedly ♉️ the week ending 11/11/22 and has been🚦bullish Trend ever since, front running China re-opening announcement by over a month.

Chart: $COPPER +7.8% (w) +23.9% (T)
4/11

Declines in energy costs in December nearly offset the rise in shelter costs in the #CPI report. The commensurate real wages ↗️ put pressure on hydrocarbons this week = sowing the seeds #Goldilocks early demise

Chart: $GASO +13.39% (w) -3.67% (T)
4a/11

📌 Importantly, I want to note that oil 🌊 has fallen to multi-month lows as speculators have been shaken from the market.

Time to get long energy 🛢 folks.

Chart: $OVX 38.19 at the lowest level in a year.
5/11

While the "the food index increased +10.4% over the last year” in the December #CPI report, grains have been decidedly subdued since peak inflation in June.

Chart: $DBA -0.15% (w) -2.64% (T) could be the next to join the ♉️ party
6/11

With event risk behind us, the $VIX 🔻 to 18.35, a 1-year low and supporting equity prices as both realized and implied vol fall.

Chart: $VIX 18.35 has some calling for long zee puts, but I’m not so sure
6a/11

Small caps led 🇺🇸 equity indices ↗️

Chart: $IWM +5.33%
6b/11

High beta ♣️ low beta by a wide margin

Chart: $SPHB +5.96% (w) compared to $SPLV -0.43% (w)
6c/11

Growth had a slight edge over value

Chart: $SPYG +2.78% (w) compared to $SPYV +2.7% (w)
6d/11

With real wages rising, consumers ostensibly have more 💰 in their pockets to spend.

Accordingly, consumer discretionary led US Sectors ↗️ while Staples -1.37% on the week.

Chart: $XLY +5.78% (w) +3.27% (T)
7/11

A weak $USD has also catalyzed ♉️ moves in international indices over the past 3 months with both Europe and the Pac Rim showing outsized 💪

Chart: $DAX +3.26% (w) and +22.7% off the October lows
8a/11

In bond land, the yield curve remains deeply inverted as the short-end has been 📌 by the Fed and bonds have rallied on slowing inflation and the prospect of #recession in the year ahead

Chart: 10Y3M to -118 bps
8b/11

Corporate bonds led bond ETFs ↗️

Chart: $LQD +1.72% (w) +10.05% (T)
9/11

Supporting all of this ♉️ 🚀, 374B has come out of reverse repo (money markets) and into risk assets since the end of December 🔥

It only takes 50-100B to move markets each day

Chart: Overnight reverse repo
10a/11

The big question for investors is how long can this #Quad1 #Goldilocks ♉️ last - especially as it runs into a 🦅 #FOMC on 02/01/23, one day after the Employment Cost Index (ECI) for Q422 is released.

Remember, this Fed is focused on wages aka "services ex-shelter"
10b/11

I’m inclined to agree with @BobEUnlimited that this #Goldilocks is transitory and that it will sow its own seeds of destruction as moribund commodities spring to life and as real wage gains spur a resilient consumer, pushing #inflation ↗️

blog.unlimitedfunds.com/transitory-gol…
10c/11

In the meantime, we will run a Goldilocks play 📗 in combination with our recession play 📕

Image: #Goldilocks play 📗
11/11

Despite extremely overbought conditions in equities, expect positive vanna and charm 🌊 into #OPEX 🥐 as well as more #TGA spend as Janet front runs Congress & reverse repo 💦 as chasers chase the 200-day #FOMO

Note $SPX resistance at 4075-4100 and have a super 💰 week!

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Ted Darling Profile picture
Sep 22
Summary of FOMC Press Conference (09/18/24):

Jay Powell announced a 50 basis point (bps) cut to the federal funds rate, citing the need for "recalibration" of monetary policy as the economy continues to moderate. The labor market has cooled, with job growth slowing, and inflation remains slightly above target. Powell emphasized that policy adjustments are not on a "pre-set course" and will be made on a meeting-by-meeting basis to support the Fed’s dual mandate of full employment and stable prices. The Fed projects a federal funds rate of 4.4% by year-end, moving towards 3.4% by the end of 2025.

Key Points and Implications:

Rate Cut Justification: The Fed's decision to cut rates by 50 bps reflects a proactive stance in ensuring economic stability, acknowledging moderating growth and softening inflation pressures.

Economic Growth and Labor Market: While growth is forecast at 2.2%, the labor market has softened, with average monthly job gains of 116,000 over the past three months. This cooling labor market suggests the risk of inflation from wage growth has decreased.

Inflation Outlook: Despite inflation remaining above 2%, with core inflation at 2.7%, Powell believes inflation expectations are well anchored and sees the current policy stance as effective in bringing inflation down toward the target.

Future Interest Rate Trajectory: The Fed projects a median federal funds rate of 4.4% by the end of 2024 and 3.4% by the end of 2025. Powell stressed flexibility, indicating future rate cuts will be data-dependent.

Balance Sheet Policy: The balance sheet runoff will continue, with reserves expected to remain stable and abundant. There is no immediate plan to halt the reduction, which could signal tighter liquidity conditions.

Risks to the Economy: Powell highlighted that while the economy remains solid, risks have increased. The Fed is attentive to both its employment and inflation mandates and is prepared to adjust policy as needed.

No Pre-set Course: Powell emphasized that the Fed is not committed to further cuts or hikes at each meeting. They will take a "meeting-by-meeting" approach, carefully assessing economic data.

Housing Sector: Powell noted that housing remains weak, with market rents growing at a slower pace. Housing is expected to normalize as rates stabilize.

Implications for the Economy and Interest Rates:

Short-Term: The rate cut is expected to provide some support to the economy, preventing a sharper slowdown. However, the Fed remains cautious, particularly about the labor market and inflationary pressures.

Long-Term Interest Rate Outlook: The Fed's median projection of a federal funds rate at 3.4% by the end of 2025 suggests a more accommodative stance over time, though the neutral rate could be higher than previously thought.

Labor Market Impact: If labor market weakness continues, the Fed could make additional cuts to support employment, though Powell made it clear they are not currently seeing signs of rising layoffs.

Inflation Risks: With inflation still above the 2% target, the Fed will remain vigilant. The recalibration strategy is aimed at avoiding both excessive inflation and economic contraction.

Potential for Additional Cuts: If the economy weakens or inflation falls faster than expected, further rate cuts are possible, but Powell indicated the Fed will not rush, preferring to evaluate data as it comes in
Average $SPX Returns (All Cycles 1985-2024):

1-month: +1.5%
3-month: +3.5%
12-month: +10.2%

Historically, the stock market's response to Federal Reserve interest rate cutting cycles has varied depending on the economic conditions that prompted the cuts. However, the overall tendency is for the S&P 500 ($SPX) to perform positively in the months following a rate cut, particularly as markets anticipate easier monetary conditions to support economic growth. Below, I'll provide a summary of historical data on how the S&P 500 performed after interest rate cutting cycles since 1985, followed by individual cycles and their performance over 1-month, 3-month, and 12-month time frames.

Interest Rate Cutting Cycles:

1985-1986 Cutting Cycle (Sep 1985 - Aug 1986) Trigger: Slowing economy after early 1980s inflation.
1-month: +2.0%
3-month: +4.0%
12-month: +23.7%

1989-1990 Cutting Cycle (Jun 1989 - Dec 1990) Trigger: Response to rising unemployment and slowing growth.
1-month: +0.5%
3-month: -3.8%
12-month: -2.9%

1995-1996 Cutting Cycle (Jul 1995 - Jan 1996) Trigger: Mid-1990s economic slowdown.
1-month: +1.7%
3-month: +7.2%
12-month: +18.9%

1998 Cutting Cycle (Sep 1998 - Nov 1998) Trigger: Russian default and LTCM collapse.
1-month: +6.0%
3-month: +19.3%
12-month: +31.7%

2001-2002 Cutting Cycle (Jan 2001 - Nov 2002) Trigger: Dot-com bubble burst, 9/11 attacks.
1-month: +2.2%
3-month: +3.8%
12-month: -18.3%

2007-2008 Cutting Cycle (Sep 2007 - Dec 2008) Trigger: Global financial crisis.
1-month: -0.5%
3-month: -11.8%
12-month: -37.0%

2019 Cutting Cycle (Jul 2019 - Oct 2019) Trigger: Global growth slowdown, trade tensions.
1-month: +0.6%
3-month: +6.6%
12-month: +14.7%

2020 Pandemic Cutting Cycle (Mar 2020) Trigger: COVID-19 pandemic economic shutdown.
1-month: -8.8%
3-month: +21.5%
12-month: +68.4%

2023-2024 Cutting Cycle (Sep 2024 onward) (pending future outcomes)

Key Insights:
Short-term response (1-month): Stock market reactions are mixed, but there is a mild positive bias (+1.5% average). Notable exceptions were during severe financial crises like 2007 and 2020, when the market had a negative 1-month response to rate cuts.

Intermediate-term response (3-month): The S&P 500 tends to perform better over a 3-month horizon after rate cuts, averaging +3.5%. This is a sign that markets begin pricing in the positive effects of lower interest rates, particularly when the cuts are meant to stimulate growth.

Long-term response (12-month): The best returns tend to be over a 12-month horizon, averaging +10.2%. Historically, 12-month performance was particularly strong in the 1995 and 1998 cycles, but weaker in more extreme economic downturns, such as 2001 and 2007.
In general, when rate cuts are made in response to slowing growth but not a full-blown crisis (e.g., 1995 or 1998), the stock market tends to perform well.

However, in more severe economic environments (2001, 2008), the positive effects of rate cuts are not immediately felt, and the stock market can experience continued weakness.

The current 2024 cycle, with the 50 bps cut in September, follows a mixed economic outlook (moderating growth but stable inflation), so the performance could align more closely with "mild slowdown" periods like 1995 or 2019, where cuts preceded solid market performance.
There have been several instances where the Federal Reserve initiated a rate cut while the S&P 500 ($SPX) was near all-time highs. These periods typically occurred when the Fed shifted from a tightening to an easing cycle, despite relatively strong market performance. Below are some notable instances:

1.  July 1995

Context: The Federal Reserve cut rates in July 1995 as the economy showed signs of slowing after a period of tightening. The S&P 500 was trading near all-time highs at the time, as the stock market had been performing well.
Market Reaction: Following the rate cuts, the market rallied further, with the S&P 500 posting strong gains over the next year.

2.  September 1998

Context: Despite being near record highs in July 1998, the Fed cut rates in response to the Russian debt crisis and the collapse of Long-Term Capital Management (LTCM), which created fears of systemic risk. While the stock market dipped briefly, the S&P 500 was still elevated near its highs compared to past years.
Market Reaction: The S&P 500 rebounded strongly after the rate cuts, with one of the best-performing 12-month periods following a rate cut (up over 30%).

3.  July 2019

Context: The Fed began cutting rates in July 2019, following a long tightening cycle that ended in 2018. The S&P 500 was near all-time highs, driven by solid corporate earnings and the market's anticipation of looser monetary policy.
Market Reaction: The S&P 500 continued to climb after the initial cut, gaining around 14.7% over the next 12 months, despite some volatility from global trade tensions and slowing economic growth.

4.  July 1997

Context: This was during the late 1990s bull market when the S&P 500 was regularly reaching new highs. Although the Fed wasn’t engaged in significant rate cutting, there were periods of temporary rate adjustments amid a booming stock market.
Market Reaction: The market continued to perform well as growth remained strong and inflation was low.
Key Insights from These Instances:

Rate cuts near market highs often signal a shift in policy in response to external risks or economic moderation, rather than a full-blown crisis.
Short-term caution: In some cases, there is initial volatility following a rate cut, as investors process the reasoning behind the cut, but in the examples noted above, the long-term market reaction has been positive.
Market anticipation: In these instances, the market tends to anticipate rate cuts, so the S&P 500 continues to climb or remain near highs even as the Fed loosens monetary policy.
The 2019 example is particularly relevant to 2024, where the Fed is easing policy despite a relatively resilient stock market, suggesting that stock prices may still have upside potential if economic risks are managed successfully.
Read 12 tweets
Ted Darling Profile picture
Aug 2
Hello Friday! 🥷

I don't know if it's the unwind of the Yen 💹 carry trade, the change in vol 🌊 regime , or a Fed that's too #tight in the face of weak economic date, but risk assets are getting pummeled 🗡️🩸

I doubt $NFP will save us

Let's dig into the market 🧮!
Asia 🗡️🩸

$NIKK 35912 -5.75% ⬅️ 🙀
$SSEC 2905 -0.9%
$HSI 16946 -2.1%
$KOSPI 2676 -3.65% ⬅️ 😮
$IDX 7311 -0.2%

Australia ↘️
$ASX 7943 -2.1%

Bharat ↘️
$BSE 81182 -0.85%
Europe ↘️

$VSTOXX 20.92 🔺

$DAX range = 17862 - 18711 ♉️ to ↔️ 🆕
$FEZ range = 48.65 - 50.71 ↔️ to 🐻 🆕

$DAX 17898 -1.05%
$FTSE 8264 -0.25%
$CAC 7342 -0.4%
$AEX 893 -1.6%
$IBEX 10818 -0.35%
$MIB 32427 -1.3%
$SMI 12013 -2.45% ⬅️ 😬
$MOEX 2918 -0.6%
Read 13 tweets
Ted Darling Profile picture
May 23
Hello Thursday!

With FOMC 🏦 minutes 📓 (nothing 🍔 that gave you a #BTFD moment) and $NVDA 🚀 out of the way, the $VIX (along with metals and the $USD) is collapsing

This is unequivocally ♉️ equities

Let's dig into the market 🧮!
Asian #dispersion ⬆️ ⬇️

$NIKK 39112 +1.3% ⬆️
$SSEC 3116 -1.35% ⬇️
$TWSE 21552 unch
$HSI 18869 -1.7% ⬇️
$KOSPI 2722 -0.05%
$IDX 7221 +0.5% ⬆️

Australia ↘️
$ASX 7812 -0.45%

Bharat ↗️
$BSE 74955 +1.0%
Europe trying to bounce ↔️

$VSTOXX 12.37 🔻

$DAX range = 18436 - 19085 ♉️
$FEZ range = 52.32 - 54.53 ♉️

$DAX 18695 +0.05%
$FTSE 8348 -0.25%
$CAC 8102 +0.1%
$AEX 915 +0.5%
$IBEX 11314 -0.15%
$MIB 34411 -0.15%
$SMI 11979 +0.25%
$MOEX 3417 -0.8%
Read 11 tweets
Ted Darling Profile picture
May 5
🐻♉️↗️↘️↔️⚠️🚩🔺🔻🧮 💰

Something strange happened in #macro markets this week 🧵 1/7

Inflation data pushed  🔺 and the #TRA pointed to coupon issuance 🔺, yet inflation assets sold off 🔻 and bonds caught a bid 🔺

Let’s dig into the 🧮!
2/7
Data and policy palooza this past week supported a phase transition to #stagflation
3/7
First the #inflation data

#ECI +1.1% 🔺
CS Home Price +7.3% y/y 🔺
#ISM Manufacturing Prices 60.9 🔺
Unit Labor Costs +4.7% 🔺
#ISM Services Prices 59.2 🔺
#AHE Y/Y +3.9% 🔻 ⬅️

Together with April #CPI 🔺 and #PCE 🔺, inflation acceleration is trending 🔺
Read 7 tweets
Ted Darling Profile picture
Mar 7
Hello Thursday!

"BOJ Board Member Nakagawa Says Japan Moving Steadily Toward Achieving Price Goal" and the $USDJPY rolls again…

Let's dig into the market 🧮!

wsj.com/articles/boj-b…
Image
Asia closed ↔️ with $NIKK ↘️ 🥷

$NIKK 39598 -1.3%
$SSEC 3027 -0.4%
$TWSE 19694 +1.0% ⬅️
$HSI 16239 -1.25%
$KOSPI 2648 +0.25%
$IDX 7369 +0.55%

Australia ↗️
$ASX 7764 +0.4%

Bharat ↔️
$BSE 74073 unch
Europe trading ↔️

$DAX 17671 -0.3%
$FTSE 7657 -0.3%
$CAC 7941 -0.2%
$AEX 859 +0.2%
$IBEX 10254 +0.55%
$MIB 33333 -0.1%
$SMI 11497 -0.45%
$MOEX 3306 -0.15%

$VSTOXX 14.27

$DAX range = 17306 - 17919 ♉️
$FEZ range = 49.79 - 51.89 ♉️
Read 11 tweets
Ted Darling Profile picture
Feb 19
Hello Presidents Day!

The 🇺🇸 is closed for the holiday but 🇨🇳 is back after making 🥳 with the 🐉 for the past week

Let's dig into the market 🧮!
In Asia, the $NIKK finding overhead near ATHs after a ♉️ breakout run to 38500

$NIKK 38470 -0.1%
$SSEC 2911 +1.55% 🇨🇳
$TWSE 18636 +0.15%
$HSI 16156 -1.15%
$KOSPI 2680 +1.2%
$IDX 7297 -0.55%

Australia ↔️
$ASX 7665 +0.1%

Bharat ↗️
$BSE 72718 +0.4% Image
Europe ↔️ stalling at ATHs

$DAX 17065 -0.3%
$FTSE 7717 +0.05%
$CAC 7739 -0.4%
$AEX 855 -0.3%
$IBEX 9927 +0.4%
$MIB 31635 -0.3%
$SMI 11327 +0.15%
$MOEX 3247 +0.13%

$VSTOXX 14.62 🔺

$DAX range = 16922 - 17258 ♉️
$FEZ range = 48.13 - 49.50 ♉️ Image
Read 10 tweets

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