Is the U.S. progress on inflation a case of two steps forward, one step back? Even before the stronger-than-expected September CPI report, bond prices were declining in the wake of the Fed’s jumbo half-point rate cut decision. The Treasury market is exhibiting signs of anxiety from a technical analyst’s perspective. The 7–10-year Treasury ETF...
Mid-week market update: The option market was pricing in a daily equity market swing of 1.6% ahead of today's events, namely the May CPI report and the FOMC decision. Even though the S&P 500 gained strongly today, the move could be said to be disappointing in volatility terms. The bullish tone was set this...
Is good economic news good news for equities or bad news? We know how to interpret macro news for the bond market. The Citi Economic Surprise Index (ESI), which measures whether top-down economic releases are beating or missing expectations, has been a bit weak. Historically, a weak ESI has meant lower bond yields. ...
Mid-week market update: Bulls were disappointed when the Zweig Breadth Thrust buy signal didn't achieve its objective when the ZBT Indicator failed to rise from oversold to overbought in 10 trading days. But they received a consolation when it reached a late overbought reading on Monday, which was two days late. Do the...
Preface: Explaining our market timing models We maintain several market timing models, each with differing time horizons. The "Ultimate Market Timing Model" is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade. The Trend...
Gold bulls became very excited when gold prices tested overhead resistance at the 2000–2100 level. In the past, such tests had been met with selling pressure, but technical analysts would interpret a definitive breakout at these levels as opening the door to significant upside. Moreover, the bottom panel of the accompanying chart shows that...
Mid-week market update: There was a lot of angst last week about how Treasury market, whose yields had been rising steadily, was the main driver of risk appetite. When I saw this cartoon circulating, I thought that it marked the top in yields as a contrarian indicator. Indeed, the bond market rallied when Bill Ackman...
Preface: Explaining our market timing models We maintain several market timing models, each with differing time horizons. The "Ultimate Market Timing Model" is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade. The Trend...
Mid-week market update: The S&P 500 bounce stalled at the 4380-4400 resistance zone, which is just below its 50 dma. I continue to believe that the next major move is up. Here’s why. Bond market tantrum Stock prices have been affected by the tantrum in the bond market. The price of...
About a week ago, market anxiety was high over surging Treasury yields, which was attributed to concerns over a soaring fiscal deficit and a rising supply of Treasury paper. This led to upward pressure on the term premium, or compensation for holding longer duration assets, and real yields. Here’s what has happened since...
What’s bothering the bond market? The 10-year Treasury yield (blue line) has shot up to levels last seen just before the GFC. The surge in yields has occurred just as investors are seeing better news on inflation. At the same time, core PCE (red line) has been falling. Shouldn’t that be good news for the...
Strategists coined the term TINA (There Is No Alternative) for describing equities as an asset class during the low-interest rate era. Now that rates have risen, there is a new acronym, TARA (There Are Reasonable Alternatives). Today, U.S. faces a TARA challenge from elevated Treasury yields. The forward P/E ratio of the S&P 500 had...
Is the soft landing here? Wall Street strategists have been racing to reduce their recession odds in the last week. More importantly, Fed Chair Powell revealed during the post-FOMC meeting press conference that Fed staff had upgraded its forecast from a mild recession in H2 2023 to no recession. In the past few weeks,...
The main events in the coming week will be the interest rate decisions by Federal Reserve on Wednesday and the ECB on Thursday. Both are widely expected to raise rates. However, market expectations for the trajectory of the U.S. Fed Funds rate is a 25-basis-point hike at the May meeting, a pause, and rate cuts...
The International Monetary Fund published its latest World Economic Outlook. It cut its global GDP growth estimate by 0.1% from 2.9% in January to 2.8%. More ominously, it issued a warning about a growing risk of recession in the advanced economies from financial instability risk from bank failures: “A hard landing — particularly for advanced...
The main event last week for US investors was the FOMC decision. As expected, the Fed raised rates by a quarter-point and underlined that "ongoing increases in the target range will be appropriate". Powell went on to clarify that "ongoing increases" translated to a "couple" of rate hikes, which would put the terminal rate at...
It's time to conduct one of my periodic market leadership reviews. The review will be done through different viewpoints, starting from the top from an asset lens, a global equity lens, and finally through a factor, or style, lens. The primary tool for my analysis is the Relative Rotation Graph, or RRG chart, which...
The performance of balanced funds has become especially challenging in 2022. In most recessionary equity bear markets, falling stock prices were offset by rising bond prices or falling bond yields. The fixed income component of a balanced fund portfolio has usually acted as a counterweight to equities. Not so in 2022. You would...
Preface: Explaining our market timing models We maintain several market timing models, each with differing time horizons. The "Ultimate Market Timing Model" is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade. The Trend...
In light of the dismal performance in the first nine months of a 60/40 portfolio in 2022, it's time to ask, "What's changed and what adjustments should investors make to their portfolios?" The answer is inflation, and it's a game changer. The correlation between stocks and bond increasingly rise as inflation rises. In...
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