Positioning Counts
Yesterday was a historic day for technology stocks as blue chips firm such as ecommerce firm Amazon (AMZN) was up over 12% on the day.
It was a day to remember.
Even the marginal tech stocks did well like digital used car dealer Carvana (CVNA) which delivered almost 31% of performance in just one day.
I would boil down one of the greatest up days in tech stocks’ history to positioning.
Tech stocks have been crushed on almost every inflation report and when the October Consumer Price Index (CPI) dished us a 7.7% increase over last year and 0.4% increase over the prior month, tech stocks took off like a rocket.
We finally clawed one back for the tech companies.
That’s not to say we are in a deflationary environment – hardly so.
However, the bar has been set so unbelievably low at this point, that any measly beat of consensus was going to cause this type of explosive reaction.
The highly positive unintended result is that it offers investors an attractive entry point into tech stocks until the November CPI report in December where we play chicken yet again.
I fully expect dip buyers and portfolio managers chasing year-end performance to jump into this bear market rally until December 13th.
Long term, the Central Bankers must be shaking their heads as this sets the stage for even more inflation as a cheaper dollar will bid up the price of commodities possibly delivering consumers higher oil prices and higher raw material costs next year.
That means higher iPhone costs and higher EV costs that get passed onto the guy or gal opposite the cashier's counter – the American consumer.
Other knock-on effects will mean higher gas prices for Uber, Lyft, and DoorDash drivers to deliver hot meals.
Celebrating a 7.7% inflation headline as a homerun is funny when we think about it, but that’s how negative positioning was going into yesterday.
The indexes for used cars and trucks, medical care, apparel, and airline fares all declined over the month.
Looking into individual aspects of the report, housing prices continued their climb, with the cost of shelter recording its largest month-on-month increase — 0.8% — since August 1990, while rising 6.9% from a year ago.
The food index increased 0.6%, down slightly from September's 0.8% increase.
I can easily see the shelter portion of inflation dropping for the November CPI report in December because shelter is a lagging indicator and my analysis earths reductions in rental listing prices and greater supply.
Therefore, shelter coming down would stoke yet another bull rush into New Year for tech stocks.
In a nutshell, short-term highly positive and long-term somewhat negative for tech stocks is how I would categorize this report.
At the end of the day, investors and traders scoff at the 5% Fed Funds rate as not a big deal and are weaponizing any scintilla of relative loosening to pile into the long side.
This is the problem when the smartest people in the world are convinced that the Fed will save the day if systemic contagion ever emerges and until then, keep bulldozing into the bull side on every modicum of perceived easing to the credit liquidity story.
It is basically a lift-off for tech stocks until December 13th.
