Market On Open, Monday 5 May
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Now What?
by Alex King, CEO, Cestrian Capital Research, Inc
In case you decided to take a vacation from markets amid the post-Liberation day wreckage, the news is this: it was but a dream, and markets have recovered most of those losses. At index level anyway; if you like to invest in higher-beta single stock names then the picture may be more bleak.
So now what? Was it all a storm in a Tea Party cup? Has the market already adjusted to a new economic order of higher tariffs and lower taxes? Does it just resume the bull trend from here?
This is a tricky one in my view. If we turn to fundamentals we can see that companies providing electronic services (Microsoft, Meta Platforms) are doing just fine, no clouds on the horizon save for some higher input costs which their chunky cashflow margins can well absorb. But anyone selling imported goods (Amazon, Apple) has some problems. Given that both these latter two companies have business models predicated on labor cost arbitrage, it’s hard to believe they can operate under a tariff’d regime in the same way as in a free-er trade regime. And if AMZN and AAPL stocks get hit, then equity indices are going to get hit.
As always it is nigh-on impossible to deduce stock price direction from fundamentals, so what about technicals? Well, the major indices are all clustered a little above or below their key moving averages and the self-fulfilling logic of technical analysis means that indices will likely at least pause for thought before moving higher, and maybe worse. Key moving averages are rarely defeated in a single move - they usually take a number of renewed assaults to overcome. You can see this in the charts below.
Short- And Medium-Term Market Analysis
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US 10-Year Yield
Equity Volatility
I think we are heading for the “not enough worry” zone ie. there will be some more worry popping up soon.
Disclosure: No position in volatility-linked securities.
Now, for our paying subscribers we move on to bonds, the S&P500, the Nasdaq, the Dow, and key sectors.