A risk of transitory disinflation

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...

Beware of the initial reaction on FOMC days

Mid-week market update: The stock market reacted with a risk-on tone to the FOMC decision. The S&P 500 has staged an upside breakout through the 4100 level. While I am cautiously intermediate-term bullish, be warned that the initial reaction to FOMC decisions are often reversed the following day.     Keep in mind that this...

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...

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."...

Mr. Bond, I expected you to die

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...

“50 bps in December”, or “Stay the course until the job is done”

Mid-week market update: In the long awaited Powell speech, the Fed Chair signaled, "It makes sense to moderate the pace of our rate increases...[and] the time for moderating the pace of rate increases may come as soon as the December meeting". The market reacted with a risk-on tone and began to discount a series of...

Waiting for clarity from the Nov 30 Powell speech

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 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...

Soft CPI is helpful, but it’s still a bear market

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...

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...

How to trade the Fed Whisperer 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...

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 the pivot may be closer than you think

Richard Nixon's Treasury Secretary John Connally famously said in 1971, "The dollar is our currency, but it is your problem". Nixon's actions at the time closed the gold window, imposed a number of tariffs, and drove the USD down in the aftermath of the collapse of the Bretton Woods Agreement of fixed exchange rates.  ...

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...

Managing fear and greed in a time of volatility

Mid-week market update: I received a number of questions from readers who were positioned for the monster rally that began on Monday, "What's your upside target?"   The answer is, "It depends." Make no mistake, the market was washed out and oversold when the rally began, but it was sparked by a rebound in bond...

The anatomy of a failed breadth thrust

Many technical analysts turned excited in late August when the percentage of S&P 500 stocks above their 50 dma surged from below 5% to over 90%. Historically, such breadth and momentum thrusts have signaled a fresh bull market with a track record of 100% accuracy.     Since then, the percentage of stocks above their...

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....