Another Sucker’s Rally?

Stock markets rallied again, setting the stage for a short-term upswing. Were you forwarded this email? [Sign-up to Rude Awakening here.]( [Unsubscribe]( [The Rude Awakening] Another Sucker’s Rally? - The S&P 500 was up 2.06% yesterday, led by tech stocks. - Nasdaq was up 2.76% as retail sales improved in the US. - That’s good news, but will it last? Not for long, probably. Recommended Link [These weird devices are about to appear all over America]( [Click here for more...]( According to America’s top tech futurist – dubbed the “Tech Prophet” by Forbes – millions of these strange little devices are about to appear in every corner of our country… including your home. What are they? And why did one tech insider with connections to Apple and Microsoft claim they’ll “rewrite the rules of what’s possible?” [Click Here To Learn More]( Sean Ring Editor, Rude Awakening Good morning to you on this auspicious hump day! The stock markets rallied yesterday on better-than-expected retail sales numbers, and all is well. If only that were the case. I don’t think most people realize that we’re still in a correction phase, and it’s not done yet. Yesterday, I chatted with a good friend and former mentor from my broking days in London. Freddie and I drank many a pint together. He was the brightest bulb on our brokerage desk. After exchanging pleasantries and catching up on family stuff, the conversation quickly turned to the ongoing idiocy in the financial markets and how it doesn’t bear my relation to economic reality. Freddie told me he moved back to Norfolk, England, a lovely county on England’s rump. Norfolk is home to lovely old pubs, fantastic seafood, and stunning landscapes. Freddie mentioned, “Everyone I’ve spoken to - hairdressers, shopkeepers - are mowing through their savings.” This jibes with my thoughts - and most likely, your thoughts, too - that the Western economy is running on fumes. Of course, that’s one anecdote. But it’s a common one. Contrasting that narrative, retail sales in the US rose 0.9% in April, the fourth such rise this year. This positivity excited the markets. I’m not so optimistic. In today’s Rude, I’ll show you a few charts - my own and others - that make me believe we’re nowhere near out of the woods yet. Stocks Let’s start with a look at the broad stock market since the beginning of this year. It’s not a pretty picture, which is why investors get excited at the first signs of recovery. The SPX is far below its 50-day moving average, and that’s below the 200-day moving average. We’re down, plain and simple. But that doesn’t mean it’s game over. Indeed, I think we can rally from here another 200 points or so to 4,300. Then I suspect we’ll head back down. [On March 7th, I wrote that we could be heading down to 3,213](. I stand by that call and will do so until evidence points me in another direction. So what got the market so excited yesterday? Retail Sales Earlier I mentioned US retail sales rose for the fourth straight month, coming in at 0.9%. The markets believe the US consumer will save the world once again. Here’s some simple math for you: if consumption is 70% of US GDP, and the US economy is 15% of the world economy, then the US consumer is 10.5% of the world economy. This over-reliance on the US consumer is just one of the reasons exporters to the US, namely China, Japan, and Germany, want to keep their currencies cheap. China, Japan, and Germany must export their way out of economic trouble because their dire demographics strangle domestic demand. And the cheaper their currencies are, the cheaper their exports are for US buyers. But here’s the thing: even though retail sales were up four months in a row, each of those monthly numbers was lower than the previous month’s. Credit: [The Wall Street Journal]( (arrow: mine) In January, retail sales were up 2.7%; in February, 1.7%; and in March, 1.4%. So while retail sales increased in April, it hasn’t reversed this declining trend. What might explain this? Savings I know Freddie was talking about the savings of his friends and neighbors in Norfolk, but earlier in the day, The Daily Shot sent out this chart. This corroborates Freddie’s anecdote from across The Pond. I’ve never understood how ordinary people withstood the government-mandated private sector shutdown. I wrote how my family would’ve been in deep, deep trouble if this happened 30 years ago and Philosopher/Truck Driver John Ring was kept off the roads. And we are seeing the bottom 20% of wage earners’ savings decimated. This is no mystery, as the Biden Price Hike was sure to attack the low-end wage spectrum first. The wonder is how it didn’t hit the numbers until now. And there’s another worry, as well. Recommended Link [Crypto Legend Reveals: “The Next Bitcoin”]( He called Bitcoin at $61. Now he says this next crypto will be even bigger. In fact, he’s targeting 25X gains over the next year alone. [Click Here For More Details]( Dr. Copper Comes Down Copper is a good leading economic indicator because you need copper to build almost any durable good. Copper is ductile, meaning it can be drawn into wire. And we need copper wiring for everything, like radios, TVs, generators, and motors. When copper declines in price, it may signal a downturn coming soon. The chart above shows that copper futures (the primary way to trade commodities is via futures contracts) have come off in the last few trading sessions. It’s not a positive sign. Lastly, let’s look at another leading economic indicator from the northeast of America. Empire Manufacturing Index The Empire Manufacturing Index, which came out last Friday, is based on the survey responses of a pool of about 200 top manufacturing executives. The company CEO usually answers the questionnaire, which is sent out on the first day of each month. As executives are closer to what is happening in the real economy than policymakers, this survey gives us an “ears to the ground” effect. It is computed differently than the [Philly Fed](. Survey participants are asked to rate the change for each indicator and for "general business conditions." Then, the survey asks them to compare this month to the month before and to estimate the difference six months out. For example, the April survey would ask these executives to rate the change for each indicator compared to March. They also evaluate the likely change in six months compared to April. The executives may choose one of "decrease," "no change," or "increase" for each indicator and "general business conditions." If 30% of survey respondents marked "increase," 50% chose "no change," and 20% picked "decrease," then the index would show a reading of 10 (30 - 20). Index readings are released as absolute numbers to one place after the decimal point. Overall, this is a much more negative view of manufacturing in the Northeast than was expected. By a long way, I might add. Demand has come down considerably, as well. And orders are getting filled faster as they dry up. And that’s making delivery much quicker. All in all, it’s not a pretty picture from one of the most economically dynamic regions of the country. Wrap Up The sports car that is the stock market looks like it’s a recovering beauty. But under the hood, you’ll find a complete mess of forward-looking data, both price- and survey-wise. I don’t want to piss on your parade. But this stock market looks like it’s starting yet another sucker’s rally, similar to the one we had in the second half of March. If the SPX gets above 4,300, I’ll have to adjust my views. But with the dollar still rallying and the 10-year yield still haunting the 3% level - along with everything I’ve presented above - caution is warranted. Tread carefully, for these are dangerous, turbulent times. Until tomorrow. All the best, Sean Ring Editor, Rude Awakening [Whitelist Us]( | [Archive]( | [Privacy Policy]( | [Unsubscribe]( Rude Awakening is committed to protecting and respecting your privacy. We do not rent or share your email address. By submitting your email address, you consent to Paradigm Press delivering daily email issues and advertisements. To end your Rude Awakening e-mail subscription and associated external offers sent from Rude Awakening, feel free to [unsubscribe](. Please read our [Privacy Statement.]( If you are you having trouble receiving your Rude Awakening subscription, you can ensure its arrival in your mailbox by [whitelisting us.]( © 2022 Paradigm Press, LLC. 808 Saint Paul Street, Baltimore MD 21202. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized financial advice. 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