It's been over a year since the stock market bottom at the height of the Pandemic Panic. The market consensus has evolved from an early cycle recovery to a mid-cycle expansion, as evidenced by the BoA Global Fund Manager Survey. What that means for investors? Here are the key questions we focus on:...
Mid-week market update: It's always difficult to make any kind of coherent market comment on FOMC meeting days. The market reaction can be wild and price moves can reverse themselves in the coming days. Nevertheless, experienced investors understand that it's not the announcement that matters, but the tone announcement compared to market expectations. Bloomberg...
Remember when I called for a bond market rally (see What a bond market rally could mean for your investments). The 10-year Treasury yield broke support last week and shrugged off a hot CPI print. Is the bond market tempting FAIT, or the Fed's Flexible Average Inflation Targeting framework? Here are some of...
The trader Alex Barrow recently observed that the sentiment backdrop is setting up for a bond market rally. While Barron's is not as reliable as The Economist as a contrarian magazine cover indicator, the stars appear to be lining up for a counter-trend rally in bond prices. Here is what a potential bond...
Jerome Powell may turn out to be the Un-Volcker Fed Chair. Paul Volcker wrung all the inflation expectations out of the system and convinced everyone that the Fed is an inflation hawk. By contrast, Jerome Powell is attempting a mirror image policy of convincing everyone the Fed is an inflation dove. A considerable gulf...
In light of last week's partial NASDAQ reversal, I had a number of discussions with readers about whether the reflation trade has become overly consensus and crowded. To be sure, bond prices have become wildly oversold while the cyclically sensitive copper/gold ratio has surged upward and appears extended. Is the reflation trade, which...
The latest BoA Global Fund Manager Survey shows that respondents believe the biggest tail-risks to be inflation and its effects on the bond market. Are these worries overblown? How will these concerns affect asset prices? How transitory are inflation pressures? Recently, there has been a spate of reports about rising supply...
As the markets remain in risk-on mode, readers should be aware of several lurking risks that may appear from the FOMC meeting. Undoubtedly, Powell will repeat his dovish mantra that the Fed is a long way from neutral and policymakers are focused on the labor market. Nevertheless, here is what I am watching: ...
The fiscal and monetary authorities of the developed world are engaged in a great macroeconomic experiment. Governments are spending enormous sums to combat the recessionary effects of the pandemic and central banks are allowing monetary policy to stay loose in order to accommodate the fiscal stimulus. Eventually, inflation and inflation expectations are bound to rise....
Is the US stock market in a bubble? Yes and no, according to Ray Dalio of Bridgewater Associates. Using a proprietary technique to create a "bubble indicator", Dalio concluded that "the aggregate bubble gauge is around the 77th percentile today", compared to a 100th percentile reading in 1929 and 2000. Dalio qualified his...
Mid-week market update: Is the bond market panic over yet? The 10-year Treasury yield touched a high of 1.6% last week. It fell when the Reserve Bank of Australia began to engage in yield curve control, but it is edging back towards 1.5% again. Based on this week's market action, I conclude that...
Jerome Powell's Congressional testimony last week made the Fed's position clear. Monetary policy will remain easy for the foreseeable future. Inflation dynamics change, but not on a dime. While Fed policy will leave short-term interest rates anchored near zero, the market's inflation expectations have been rising. Last week, the 10-year Treasury yield briefly breached 1.6%...
The nature of the market advance has been extraordinary and relentless. From a long-term perspective, the monthly MACD model flashed a buy signal last August for the broadly-based Wilshire 5000 and there are no signs of technical deterioration. This is a bull market, but sentiment has become sufficiently frothy that a reset is overdue. ...
Now that virtually everybody has bought into the reflation and global cyclical recovery trade, and Reddit flash mobs are ganging up on short sellers to drive the most short-sold stocks into the stratosphere, what could go wrong with this bull? Notwithstanding the silliness of the WSB flash mobs, here are some key bearish...
Last weekend, I conducted an unscientific and low sample Twitter poll on the market perception of the Georgia special Senate elections. The results were surprising. Respondents were bullish on both a Republican and Democratic sweep. As the results of the Georgia Senate race became clear, the analyst writing under the pseudonym Jesse Livermore...
Jens Nordvig recently conducted an unscientific Twitter poll on the FOMC's action at the December meeting/ While there was a small plurality leaning towards a "steady as she goes" course, there was a significant minority calling for another Operation Twist, in which the Fed shifts buying from the short end to the medium and long...
As the FOMC conducts its two-day meeting after its big reveal of its shift in monetary policy, Fed watcher Tim Duy thinks that we won't get much more in the way of details from the Fed after this meeting: The odds favor the Fed maintains the status quo at this week’s meeting. It does not...
It has been over a week since Jerome Powell's virtual Jackson Hole speech in which he laid out the Fed's revised its updates to its Statement on Longer-Run Goals and Monetary Policy Strategy after a long and extensive internal review. There were two changes. one was a shift towards an "average inflation targeting" regime, where 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...
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...
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