Market On Open, Wednesday 30 April
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You Can Get Used To Anything
by Alex King, CEO, Cestrian Capital Research, Inc
I must confess that on seeing the Tariff Board Of Shame on Liberation Day, my first expectation was that the market would shrug it off on the basis that the plan was likely performative insofar as it was impractical and likely to be walked back, negotiated, whatever. Clearly there was a couple weeks in April where markets seemed to get themselves very worried indeed about the new trade environment; but as the month draws to a close it appears that markets are getting on with their day job, which is to take money off of the fearful and give it to the greedy. Markets in the end can get used to anything, within reason, and if where the current policy ends up is in a modest tariff-hike regime with multiple parties around the world, I think securities markets can deal with this just fine.
A nugget which I think has wider significance. After the close on Monday, Cadence printed its earnings. The company chose to raise guidance. Yes in this market. And whilst most no-one cares about nor has even thought about this design software behemoth, the fact is that it is a bellwether stock. It rips up out of dips faster than most anything, and the company that issues the stock is, quietly, of systemic importance. For if Cadence is doing well it means semiconductor companies are doing well, and if semiconductor companies are doing well, so too is the economy.
Coming down the pike is an air pocket headed for store shelves in the US. Shipments from China have fallen significantly as a result of the present trade policy, and this is likely to have a knock-on effect in the logistics and retail industries in particular. What impact this has on the real economy is yet to be seen. The market, presumably, knows this is coming but appears unfazed. We may see cataclysmic headlines in May/June on this topic, I don’t know, but if we do my first assumption would be that dips are there to be bought until the bear case is better established.
So, shrugging off all prejudice and focusing purely on what matters, being price and volume, let’s take a look at where markets stand.
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Alex King
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US 10-Year Yield
As everybody knows, the bond market is in revolt and the trade policy is inflationary and we are doomed. In which case, why is the 10yr yield some 9% lower (i.e the change in the % yield, not 9% lower yield!) than on inauguration day? I myself think yields are going to continue to fall for a while yet.
Equity Volatility
Based on the high-end technical analysis method of “that looks like the rate of decline is slowing” I suspect we may see volatility hold up around here or even start to climb.
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.