Below is a chart and brief excerpt from today’s Market Situation Report written by Tier 1 Alpha. If you’re interested in learning more about the Hedgeye-Tier 1 Alpha partnership, there’s more information here.

Here's a chart that brings a glimmer of positivity to the economy… or does it?

The suggestion here is that semiconductors have shown impressive performance in 2023, and the ISM (Institute for Supply Management) is likely to catch up. This could lead to the recession being called off, granting us the freedom to dive into purchasing everything, and perhaps even believing that low volatility is here to stay.

Tier 1 Alpha: Is Semiconductor Performance a Sign of Growth ... or a Growing Bubble? - 9.5MSR

Our recent focus has been on the Federal budget, especially with Janet Yellen's announcement of issuing over a trillion dollars in treasuries towards the latter part of 2023. The question remains whether this quantity is too much for the market to absorb, potentially causing yields to rise. Fitch's concern about higher interest financing for deficit spending is a pertinent issue, although it warrants a discussion for another time.

Turning our attention to ISM's report on Wednesday, let's momentarily shift our focus away from the destabilizing factors stemming from the Federal domain and consider consumer demand. One mainstream media article last week suggested that $1 trillion in US credit card debt is indicative of consumer health and a strong economy. Respectfully, we hold a different view. While apprehensions about the Federal government's ability to manage debt linger, the same level of concern isn't mirrored in the realms of corporations and individual households. Their capacity to refinance debt isn't bolstered by the power of taxation or the ability to print money.

Regarding today's featured chart highlighting the robust performance of semiconductors, our perspective leans toward systematic buying and expansion of a bubble rather than a signal of immediate economic improvement. Of course, we'd gladly embrace being proven wrong on this matter.

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Learn more about the Market Situation Report written by Tier 1 Alpha.