27Dec1:20 pmEST

An Ominous Sign for Winter

Stock bulls may be learning the timeless lesson insofar as being careful what they wish for. 

On the back of China announcing various reopening measures the main reaction has come with another spike higher in rates despite stock index futures popping last evening off the long holiday weekend. True, the Dow is higher as I write this, but growth stocks and the Nasdaq are clearly still in the red, with various names like BYND especially vulnerable to fresh breakdowns. 

I remain short Treasuries (betting on higher rates) with Members not because I was counting on a China re-open but rather the overarching trend with structural tailwinds favored higher rates anyway after months of correcting lower. 

And with higher rates, the pressure mounts on Jay Powell and The Fed to stay tighter for longer than many expect. While I do think the CPI prints will keep receding for a few more months, these types of China-reopening headlines will keep a high floor underneath inflation and prevent it from cratering like stock bulls expect or desire.

Hence, growth stocks will remain out of favor (higher rates are the kryptonite to growth stocks) and uniquely vulnerable to panic selling in 2023 as it finally dawns on longs that they are trapped and not being thrown a life preserver by The Fed for the first time in over forty years. 

The other main issue, given the TSLA carnage, is the mechanical damage to markets done if we see giants like AAPL begin to follow suit and crack below $130 into 2023. AAPL is in the DIA QQQ, and SPY, is Buffett's top holding, and is a widely-owned and widely-loved name with retail investors. You can only imagine the fallout if AAPL suffers a TSLA-type of unwind. 

Overall, this holiday-shortened week should see more low volume grinding action like today. While a black swan could always occur, I am learning more towards February and expect the usual lag as folks come back from winter break over a period of weeks into January. 

Inflation's Flame is Recedin... There's Always Hope


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