Will Powell twist?

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...

Oh yeah, it’s also FOMC week

What's on the calendar this week? Did you forget?   Oh yeah, there's an FOMC meeting this week, and there's the November Jobs Report on Friday. While not much policy change is expected from the Fed this week, Barron's has already anointed Jerome Powell as "the winner". (Has anyone started to call him the Maestro...

Buy the cyclical and reflation trade?

The global economy seems to be setting up for a strong recovery. We are seeing a combination of easy monetary policy, slimmed-down supply chains, and a rebound in consumer confidence.     The cyclical and reflation trade is becoming the consensus view. However, there may still be time to board that train. Futures positioning in...

Broken Trends: How the world changed

The world is changing, but it changed even before Trump's COVID-19 news.     In the past few weeks, a couple of key macro trends have reversed themselves. The US Dollar, which large speculators had accumulated a crowded short position, stopped falling and began to turn up. In addition, inflation expectations, as measured by the...

How the Fed’s Policy Review received an incomplete grade

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...

What gold tells us about Fed policy expectations

Mid-week market update: It can be difficult to discern the market's short-term outlook on an FOMC meeting day, but the Fed has spoken, and the market reaction has important signals for equity investors from an inter-market, or cross-asset, analytical basis. The first important signal comes from gold prices. Gold staged an upside breakout to a...

Bearish warnings, but no trigger

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...

Back to basics: Is this market overvalued?

There has been a recent continuing controversy about the usefulness of forward P/E as a valuation tool in the current recessionary environment. On one hand, past bear markets have typically bottomed out at a forward P/E ratio of 10, with a low of 7 (1982) and a high of 14 (2002). FactSet's reported market rating...

Earnings Monitor: Digging in for the long haul

We are continuing our coverage of earnings season during these turbulent times. With 90% of the index having reported, this will be the final earnings monitor of the Q1 earnings season. This week, we are seeing greater additional signs of stabilization, but companies are digging for the long haul. Let's begin with the big picture....

The bulls are losing control, what’s next?

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...

What’s the next market narrative?

This crisis has so far gone through two phases of market psychology. The first phase was panic, as it became apparent that COVID-19 had become a global pandemic, and economies around the world were shutting down. Stock prices rebounded during the hope phase, supported by a flood of fiscal and monetary stimulus, and the hope...

The recovery scenario

The San Francisco Fed recently created a Daily News Sentiment Index, which is derived from 16 major newspapers. In the space of a few weeks, market psychology has turned from "the market is going to retest the March lows" to "the Fed is supporting prices, valuation doesn't matter, the economy is recovering, - Buy". Regular...

For traders: 3 bullish, and 1 cautionary signs

The following note is addressed to short-term traders with time horizons of a week or less. I would like to highlight some three bullish, and one cautionary data points. First, the latest update of the Citi Panic/Euphoria Model is solidly in panic territory. This is contrarian bullish, but recognize that the bullish call is based...

Any more precautionary cuts?

Mid-week market update: Now that the Fed has cut rates a third time, and the upside breakout in the SPX and NDX are holding, what's next?     Are the series of precautionary cuts over?   Dissecting the rate cut Now that Brexit risks have subsided, and trade tensions are receding as the US and...

What to watch for in Friday’s Jobs Report

BLS will be publish the September Jobs Report this Friday. This report will be important for a number of reasons, and it will answer some key questions for investors and policy makers. First, the unemployment rate has been troughing. If history is any guide, a rising unemployment rate after a trough has been signals of...

How not to push back against Trump

Former New York Fed president Bill Dudley penned an explosive and shocking Bloomberg op-ed today: U.S. President Donald Trump’s trade war with China keeps undermining the confidence of businesses and consumers, worsening the economic outlook. This manufactured disaster-in-the-making presents the Federal Reserve with a dilemma: Should it mitigate the damage by providing offsetting stimulus, or...