Ever since the NYSE Composite monthly MACD flashed a long-term buy signal, I have been monitoring the risks to the bull. Past positive MACD crossovers have signaled long-term resilient equity bull markets and such signals have marked durable advances, which are subject to the normal equity risk of minor corrections without significant bearish episodes. ...
Periodically, the market is rattled by a “China is slowing” narrative. As the accuracy of official Chinese statistics can be doubtful, the real-time market reaction indicates nervousness, but no panic. The performance of the equity markets of China and her major trading partners relative to MSCI All-Country World Index (ACWI) shows that their trends are...
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...
Mid-week market update: The market reaction to the FOMC decision was mostly a yawn. The Fed raised rates by a quarter-point, which was expected, and Powell refused to commit to further hikes while repeating his data dependency mantra. As a consequence, the S&P 500 was mostly unchanged from before the decision to after the close....
Ever since the softer-than-expected June CPI report, the Wall Street narrative has pivoted toward disinflation and a soft landing. The disinflationary trend had been building for some time and inflation has been surprising to the downside around the world. As a consequence, the markets have taken a risk-on tone in anticipation of less...
Mid-week market update: I wrote on the weekend that Q2 earnings season is potentially pivotal for the stock market (see What to watch for in a pivotal earnings season). Going into reporting season, the consensus is calling for a rebound in earning, though the recovery is expected to be stronger in large and mid-caps compared...
The Q2 earnings reporting season could be a pivotal one. Earnings reports and subsequent corporate guidance are likely to give investors greater clarity on whether the economy is softening into a slowdown or undergoing a soft landing and recovery. The preliminary picture is a fragile recovery. Forward guidance for Q2 has improved from Q1. Negative...
I recently had a discussion with a reader about my Ultimate Market Timing Model (UMTM). The UMTM is an extremely low turnover model that flashes signals once every few years and is designed to limit the extremes of the downside tail-risk of owning equities. When extreme downside risk is minimized, investors can afford to take...
As at the time of writing, the White House and the Republican-led House haven’t come to a debt ceiling deal yet, though both sides are getting closer to a deal. But you only die once, and focusing on the fear of a catastrophe isn’t very useful. Hedging only works if there is someone you can...
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...
Is the U.S. economy headed into recession? The signs are all there. Even though a recession isn’t part of the Fed’s official forecast, Fed Chair Jerome Powell conceded during the May post-FOMC press conference that the Fed’s staff economists were calling for a mild recession. Carl Quintanilla of CNBC also reported that the overwhelming...
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...
As the S&P 500 stalls at overhead resistance while exhibiting negative divergences, here are some reasons why you shouldn’t be overly bullish or bearish on U.S. equities. The Bear Case The bear case for stocks is based mainly on macro and fundamental conditions. A recession is on the horizon in H2 2023,...
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...
An unusual anomaly arose during the latest banking crisis when a long-standing historical relationship broke apart. When bank stocks skidded in response to the problems that first appeared at Silicon Valley Bank, the 2-year Treasury yield fell dramatically, indicating a rush for the safety of Treasury assets. What was unusual this time was the weakness...
It was the best of times. It was the worst of times. The S&P 500 (SPX) remains in a well-defined uptrend, but the NASDAQ 100 (NDX), which represents large-cap growth, violated an uptrend that stretches back to the GFC. The relative performance of the NASDAQ 100 to the S&P 500 shows a similar trend break...
Mid-week market update: In case you missed it, the S&P 500 experienced a "golden cross" this week, when the 50 dma rose above the 200 dma. This is generally regarded as a bullish development among the technical analysis crowd as an indication that the price trend has turned upward. How should traders and...
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...
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....
The stock market began 2023 with a rally based on the "green shoots" narrative of a Fed pivot and optimism about the effects of China reopening its economy. Since then, the S&P 500 rose to test resistance as defined by its falling trend line and pulled back. Similarly, the equal-weighted S&P 500, the mid-cap S&P...
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