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Macro Forces

DXY - The Cost of Trade

The U.S. Dollar is one of the easiest macro forces to use in predicting market direction. A weaker dollar boosts Global Trade, Economic Activity, and Asset Prices. Over the past 30 days, the Dollar strengthened, and the bull market cooled off. However, the Dollar is approaching a Point of reversal.

1. Downtrend resistance
2. Overbought territory

Crude Oil - The Cost of Energy

I"m pretty confident the path of Oil Prices will determine the timeline for Rate Cuts (Late 2023 or Early 2024?). The only reason CPI ended the record 12m consecutive decline in July was because Oil Jumped ~20%. However, Crude is Overbought & Reflecting bearish divergence.Keep in mind...the U.S., Iran, Iraq, Nigeria, & Venezuela are all increasing supply (output) while demand remains flat. I think it's going to be tough for oil to make another strong move above 83.50, and maybe it consolidates at these levels before dropping back into the 70s.

Inflation - The Cost of GDP Growth

It's tempting to get super bearish and call for July's CPI report to be the bottom of another vicious inflationary cycle. But there's really no reason to expect inflation to reflate unless we see two consecutive climbs in August and September.

• Shelter Inflation remains the largest obstacle keeping the Fed from announcing the end of the hiking cycle. We are close.

• The cost to Rent is significantly cheaper than the cost to buy. Naturally, that leads to more demand for renting...

..Leading to an explosion of rental supply from homebuilders.

MORE SUPPLY 👉🏽 LOWER PRICES 👉🏽 LOWER CPI 👉🏽 HAPPY MARKET

• Producer Prices (YoY) came in hotter than expected, which spooked the market. However, PPI is really just back to normal levels. 

• Producer Prices MoM were heavily influenced by demand for services.

• Three-month annualized inflation (Quarter over Quarter) has made significant progress. I think the Fed is done hiking.

Progress...

Should we be concerned?

Bond Yields - The Cost of Capital

The elevated cost of capital is a key macro factor keeping markets from rising. The good news is it looks like short-term borrowing rates peaked; the bad news is long-term borrowing rates are rising.

Liquidity

• RRP drain is basically 1 for 1 with the S&P. At the end of the day, what matters more than market liquidity? 

• The Fed's balance sheet is becoming a real drag on asset prices. The drop is literally draining liquidity from markets.
• Global Liquidity is flat, and it's really going to come down to when China further devalues the Yuan.

Liquidity is not in favor of markets at the moment, but I believe the RRP drain will continue to fuel government spending, thus, more Fiscal policy, especially in the face of a pre-election year and one of the lowest approval ratings of all time.

Consumers are confident 

The Earnings Cycle is bottoming

Progress on inflation + Economic recovery 👉🏾 Earnings recovery 👉🏾 , investor confidence 👉🏾 another Melt up to ALL-time Highs....Let's go