This Inflation Catalyst Hit Too Close to Home
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The Francis Scott Key Bridge collapses – and it will have lasting ripple effects… Earnings estimates fall while stocks rise… Is A.I. the next NFT?… Bitcoin crosses back above $70k…
By Michael Salvatore, Editor, TradeSmith DailyIn the early morning hours yesterday, a 16-ton cargo ship crashed into the Francis Scott Key bridge in Baltimore – less than 20 miles from TradeSmith HQ.
As I write, search and rescue operations are underway for people in seven vehicles that are believed to have fallen from the bridge. Two people have been rescued out of the eight initially reported missing.
Thankfully, everyone on the TradeSmith staff has been accounted for.
It’s not often that a disaster at this scale occurs so close to home. We can only hope that those missing are found, and those injured don’t face life-changing debilitations. That’s, rightly, where attention is focused at the moment.
Moments like these are stark reminders of how one mishap can ripple out much further than initially expected. And this event, the result of seemingly one cargo ship momentarily losing control, has significant economic implications that, as investors, we must consider…
The Port of Baltimore is one of the highest-volume trade centers in the country, and the biggest in the state of Maryland. It handles more than 10 million tons of cargo a year, much of it vehicles. In 2023, the port handled 847,158 motor vehicles. That represents more than one-tenth of all vehicles imported into the U.S. (as of 2019 figures, the most recent non-pandemic-era data).
Now, with this disaster, the entryway to the Port of Baltimore has been essentially shut down.
That’s sure to cause major disruptions – and price increases – in the U.S. car business. Potentially the largest since the pandemic shutdowns disrupted trade around the world.
Even setting that side, the bridge was a major commuter passageway that no longer exists. The congestion will be a strain on Baltimore residents and logistics networks that operate in the area, like Amazon’s.
And finally, while the ultimate responsibility lands on the pilot of the ship, the vessel was chartered by publicly traded Dutch shipping giant Maersk. On the news of the bridge collapse, the company’s Nasdaq-listed B-shares were down more than 4% on the day – the largest single-day decline since February.
This event will not resolve anytime soon, and the impact will reverberate through the global economy for just as long.
Time will tell exactly how long and exactly how bad the impacts will be. Meantime, we’ll carefully watch for further potential inflationary pressures stemming from this event in the months ahead.
❖ Stock prices are ignoring an elephant in the room…
If you ask two of the biggest financial players in the world, investors have been ignoring a major problem as stocks continue surging in 2024.According to Bloomberg, consensus expectations for S&P 500 company earnings have fallen from above 11% at the start of the year to just below 9% today. That means most analysts are expecting earnings growth to fall even as stock prices rise… either a recipe for higher price-to-earnings multiples, or an eventual correction to fill the gap.
That’s been the primary fuel for bearish year-end S&P 500 projections from JPMorgan and Morgan Stanley. Here’s Bloomberg with that data:
Morgan Stanley and JPMorgan are some of the most pessimistic strategists at major Wall Street banks. JPMorgan sees the S&P 500 ending the year at 4,200 index points — a 20% drop from the most recent close — while Wilson expects the benchmark to drop to 4,500 points.
One point of concern for bearish strategists is the narrowness of recent equity-market gains, which have been driven by the Magnificent 7. The market will need to broaden out for the rally to continue from here, Wilson wrote.
One point of concern for bearish strategists is the narrowness of recent equity-market gains, which have been driven by the Magnificent 7. The market will need to broaden out for the rally to continue from here, Wilson wrote.
Counter to this are two factors:
- The gargantuan success of the Magnificent 7, even as that falters with Apple, Google, and Tesla breaking from the pack to the downside.
- Investors’ overwhelmingly powerful hopes for easier financial conditions.
And those cuts are hitting alongside strongly positive election-year seasonality, especially for small-cap stocks… which will also capture most of the benefit from a cheaper cost of credit.
JPMorgan and Morgan Stanley may be right that earnings expectations aren’t squaring with higher prices. But Robert Shiller didn’t call it “irrational exuberance” for nothing.
Prices show us that investors are less worried about earnings than they are about rate cuts. Trying to fade that optimism is difficult – as bear trends take shape rarely, briefly, and often too quickly for most investors to take advantage.
❖ Though with the right toolkit and guidance, there’s money to be made…
William McCanless recently wrote to his Trade Cycles members about a brief, but clear period of volatility coming up for stocks.Here’s William:
If I select from April 6 to May 28 in my seasonality data, the average return on election years is down 2.4% at a nearly 55% occurrence rate.
April 8, just two days after that, is also when the next Peak begins. [Editor’s note: a Peak is the likely period of asset prices topping out, algorithmically determined through historical data.]
Now, I don’t know about you, but at these levels, I’m not prepared to go long any stocks just because there’s a brief 10-day bullish window when the next bearish window is more like 45 days.
Now, I don’t know about you, but at these levels, I’m not prepared to go long any stocks just because there’s a brief 10-day bullish window when the next bearish window is more like 45 days.
And, speaking on another elephant in the room, William casts some reasonable doubt on the lasting depth of the A.I. trend:
Tech versus the S&P 500 is the highest it’s ever been since 1926:
And yet this is almost entirely driven by a single stock. You guessed it: NVDA.
All basic evidence is pointing to the idea that this is not the time to go long.
And furthermore… the more effort I put into understanding A.I., the more I begin to believe it’s all smoke and mirrors – so much so that it reminds of the NFT craze from 2021.
The state of the biggest tools in the space and the “everybody knows” mentality I keep hearing make me wonder how long this can stick.
[…]
We might have the market go against us for a while, but I’d rather be a little bit early and start legging into position now – before seasonality turns officially bearish.
All basic evidence is pointing to the idea that this is not the time to go long.
And furthermore… the more effort I put into understanding A.I., the more I begin to believe it’s all smoke and mirrors – so much so that it reminds of the NFT craze from 2021.
The state of the biggest tools in the space and the “everybody knows” mentality I keep hearing make me wonder how long this can stick.
[…]
We might have the market go against us for a while, but I’d rather be a little bit early and start legging into position now – before seasonality turns officially bearish.
William’s Trade Cycles service is gearing up for some trades to the downside – and the evidence William shared proves that case out.
❖ Bitcoin’s back above $70k …
As we mentioned on Saturday, bitcoin (but not bitcoin proxies) appear to be a strong buy right now… and especially before the halving event coming in mid-April.Price gains through Monday have proven that out. Bitcoin crossed back above $70k on Monday, quickly absorbing last week’s selling pressure as ETF outflows weighed on traders’ conscience. From Bloomberg:
Almost $900 million was pulled from those ETFs last week, reflecting continual outflows from the Grayscale Bitcoin Trust as well as a moderation in subscriptions for offerings from BlackRock Inc. and Fidelity Investment. The group of 10 funds saw one of the worst weeks … since they were launched in January.
ETF flows are a primary driver of bitcoin price gains over the last few months, and that trend looks set to continue as the bull market continues.
Remember, the spot market is still where the overwhelming majority of bitcoin trading takes place. As time goes on, though, that may change.
Andy and Landon Swan pointed out at our ideation conference earlier this month that many institutional investors have still not bought in to bitcoin, due to restrictions on investing in newly established funds. Big money has come to bitcoin, no doubt. But not all of it, and not even most of it, has hit the coffers of the ETF sponsors.
There’s a multitude of factors supporting higher bitcoin prices over the next year or so. The ETF event was huge for awareness, and the halving event stands right alongside it as a major narrative driver.
Our guidance remains simple as ever: buy and hold a little bitcoin – ideally the genuine article – in a safe, offline wallet. It’s thus far proven an effective hedge against monetary debasement, much like its bigger brother gold, and we don’t see any sign of that stopping.
Coincidentally, William McCanless has been a long-term bitcoin bull and, back in December, said it was the single asset he’s most bullish on for 2024. (Catch up on his reasoning here.)
That wraps things for today. Be sure to tune in tomorrow for an ingenious method for hedging health care costs from contributing editor Lucas Downey.
To your health and wealth,
Michael Salvatore
Editor, TradeSmith Daily