MBCC Trading Highlights 8th November'22 - October and November play important roles in risk management, what does this mean for the market?

All the focus today will be on the mid-term elections tonight, consensus shows how the Republicans could take a majority of the House and Senate, there are whispers of a landslide victory given the low approval ratings of Biden and the abysmal performance he has had over a very trying economic time. From a market point of view, the more pressing issue remains US inflation, Fed rate tightening stance and a potential Chinese re-opening.

Stocks do not bottom when equities valuations equal 150% of the overall economy (TMC/GDP). During the 2000 recession, the NASDAQ bottomed at 71% TMC/GDP, down from 142% at the high. If the S&P 500 were to just return to a historically-lofty 100% TMC/GDP, it would entail a decline of another 30%. So we are far from a more “neutral” level. The Great Recession saw stocks bottom at 45% TMC/GDP, down from 105%. Even during the Pandemic recession, TMC/GDP fell from 152% to 120%. New Home Mortgage applications fell by 41% year over year, just as mortgage rates are now the highest in 20 years—above 7% and rising. And the ISM Services Sector Business survey showed that even though the economy slowed in October from the previous month, prices are still increasing at a faster rate. These are just a few examples.

Seasonality plays a big role as October is usually tax related selling and November, the big funds tend to close their books to square off positions into their year end. This along with BIG derivative positions is playing havoc with the market. It is important to keep the “technical” and the “fundamental” in mind as even bear markets have nasty squeezes.

How far can this go? When do we sell off again? What is China really up to?

We break it all down based on our forward looking cross asset indicators and time the fundamental with the macro.

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