FOMC preview: Party now, pay later

As investors look ahead to the FOMC decision on February 1, the market is expecting two consecutive quarter-point rate hikes, followed by a plateau, and a rate cut in late 2023.     The rate hike path and subsequent pause are consistent with the Fed’s communication policy. Already, the Bank of Canada raised rates by...

What I am watching during Q4 earnings season

Mid-week market update: As we enter Q4 earnings season, the macro backdrop looks grim. The Economic Surprise Index, which measures whether economic releases are beating or missing expectations, is weakening.       Weak fundamentals From a bottom-up perspective, FactSet reported that the market entered Q4 earnings season with a trend of falling net margins....

Key tests at resistance ahead of earnings season

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...

The bulls cross their fingers for January

Mid-week market update: The bulls are nervously getting ready for a party. Jeff Hirsch of Almanac Trader pointed out that two of his January indicators are positive. When all three are positive, the rest of the year tends to lean bullish.    This year, the market has eked out a 0.8% gain for its Santa...

Three questions investors need to ask in 2023

IMF Managing Director Kristalina Georgieva recently said in a CBS Face the Nation interview that the IMF expects "one third of the world economy to be in recession". She went on to outline the differing outlooks for the three major trading blocs in the world, the US, EU, and China, plus emerging market economies. For most...

Wall Street is fighting the Fed, should you join in?

Fed Chair Jerome Powell made it clear at the post-FOMC press conference. The Federal Reserve is nowhere close to ending its campaign of rate increases. While last two CPI reports show "a welcome reduction in the monthly pace of price increases...It will take substantially more evidence to have confidence that inflation is on a sustained downward path."...

The stealth change in market leadership you may have missed

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...

A cyclical rebound mirage?

I highlighted a widening gulf between the technical and macro outlook in August (see "Price leads fundamentals", or "Don't fight the Fed"?). At the time, the technical indicators were wildly bullish because of strong price momentum, while the macro outlook was cautious. The macro view eventually won out.   A similar divide may be appearing...

The Fed cratered stock-bond diversification, what’s next?

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...

Peering into 2023: A bear market roadmap

In the wake of the November FOMC meeting, Fed Chair Jerome Powell summarized Fed policy very clearly with two statements: "We will stay the course until the job is done". He added, "It is very premature to think about pausing (rate hikes)".   It was a hawkish message, though Fed Funds expectations were largely unchanged...

What is the market anticipating ahead of the FOMC meeting?

Ahead, of the upcoming FOMC, meeting, what is the market discounting? I conduct a factor and sector review for some answers. Starting with a multi-cap review of value and growth, value stocks have been outperforming growth stocks within large caps since early August, but this has not been confirmed by mid and small caps. The...

How inflation is a game changer for portfolios

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...

Why you should financial model the Yom Kippur War

The recent OPEC+ decision to cut oil output by 2 million barrels per day is giving me a case of PTSD from a Yom Kippur long ago. In October 1973, the stock market was just getting over a case of Nifty Fifty growth stock mania. Arab armies, led by Egypt and Syria, made a surprise...

What the Fed and FedEx are telling the markets

Both the Fed and FedEx had messages of recession for the markets. Fed Chair Jerome Powell said that the Fed would raise rates until there was clear and convincing signs that inflation was headed toward its 2% target, and its projections amounted to a recession that begins either late this year or early next year....

A pending major market bottom? It sounds too easy!

Is the universe unfolding as it should? Most technical and sentiment indicators argue for a near-term double bottom in the S&P 500. The June bottom was the initial capitulation bottom. The market rallied and it is poised to weaken and re-test the old lows in the near future. That's when the new bull begins.  ...

Assessing “Big Short” Michael Burry’s crash warning

A number of readers asked me to comment on Michael Burry's forecast of a crash, according to a report from Business Insider. Doomsday is finally here, he hinted in a since-deleted tweet this week.   The fund manager of "The Big Short" fame shared a screenshot of a S&P 500 chart, showing the benchmark stock-market...

Six reasons why this was just a bear market rally

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...

“Price leads fundamentals”, or “Don’t fight the Fed”?

Wall Street is full of adages. Technical analysts are fond of, "Price leads fundaments" as a way of dismissing macro and fundamental analysis. But traders are also warned, "Don't fight the Fed".    A vast gulf is appearing between bullish technicals and macro concerns. The bulls, who are mainly technicians, point to strong price momentum,...

The overlooked reason why the market is so strong

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...