Market Pushing Recession Out of the Way

Andrew Giovinazzi

Yo Pit Crazies,

I had some puts expire worthless on Friday – puts that had real value on Wednesday. I did have some short vol which helped pay the bills, but that was it.

In general, when you get your direction you should take it. But I had ideas.

There was no way the tech earnings would be good, so SPX 4000 would be an easy leg this week.

And they were not, just they weren’t as bad as everyone was expecting.

After 30 years of trading, I should know better; take the money when they give it to you.

So instead of 4000, we got near 4200 SPX, and Naz made a high for the year.

What seems like for the fourth time in a year, we will make a go above 4200 next week.

Here’s why things might be different.

Big Macro Moves Are Afoot

Griff and Frank are my macro dudes, and they bring a great perspective. A few things moved this week:

- - Tech is still making some money, but valuation is high and no one cares
  - The House delivered a bill with 1% spending increases tied to the Debt Ceiling
  - The Fed owned up to oversight mistakes
  - First Republic Bank (Ticker: FRC) is likely going to FDIC receivership so that ball dropped
  - Fed Rate report is May03 and VIX made a year low so a rate hike is a lock
  - Job Market is still tight

Why can’t politicians just stick to 1% hikes and argue about how to spend it? Unicorns might as well be real.

The news above is more normal, not catastrophic. As I recall, we had the dot com boom with 7% rates. Most of the data is decent – not great, but not recessionary.

I wrote in these pages 2 years ago that post-COVID would be like a mini Roaring 20s as everyone got out and got busy. The inflation we are stuck with is self created.

Higher rates are helping, and inflation is lower than last summer but not gone. All of that is in the lower VIX – the lowest since rates started going up last year. The market generally goes in the surprising direction and for now no one was thinking up.

Also note below, sustained rallies need lower VIX and that is happening as we speak