Recent U.S. economic data has generally been weakening, as evidenced by the decline in the Citigroup Economic Surprise Index (ESI, gold line), which measures whether economic data is beating or missing expectations. As ESI has been roughly correlated to bond yields, this should put downward pressure on rates and expectations of rate cuts in the...
Remember that equity investors tend to enjoy strong returns in the absence of recession, which dents returns, or war and revolution, which can result in a permanent loss of capital. With those caveats in mind, the market gods are presenting patient investors with three gifts from the three economic blocs in the world: the U.S.,...
Mid-week market update: The option market was pricing in a daily equity market swing of 1.6% ahead of today's events, namely the May CPI report and the FOMC decision. Even though the S&P 500 gained strongly today, the move could be said to be disappointing in volatility terms. The bullish tone was set this...
The closely watched April PCE moderated as expected. Headline PCE came in 0.3%, in line with expectations, while core PCE was 0.2% (blue bars), which was softer than expectations. Supercore PCE, or services ex-energy and housing, also decelerated (red bars). This latest print represents useful progress, but won’t significantly move the needle on Fed policy....
Mid-week market update: The big macro events of this week hasn't really moved the needle on risk appetite. The market didn't react much to the Quarterly Refunding Announcement detailing the schedule of Treasury issuance. The JOLTS report showed slightly weaker than expected job openings, but quits and layoffs declined as well, indicating a general deceleration...
Sometimes being Fed Chair is a trying easy job. During the last post-FOMC press conference, Powell was given numerous opportunities to interpret the data in a hawkish fashion. Instead, he took a dovish tone. As one of many examples, Jenna Smialek of the New York Times asked if strengthening in the labour market would...
Mid-week market update: Four weeks ago, I published NVIDIA at the bat, in which I discussed the market expectations for leading AI stock NVIDIA ahead of its earnings report. NVIDIA came out with a strong report that exceeded Street expectations, and the stock reacted with a price gap the following day. Fast forward...
During Fed Chair Powell’s testimony to the Financial Services Committee of the U.S. House of Representatives, he said that it will likely be appropriate to begin cutting rates “at some point this year”. At the same time, he reiterated the message that other Fed officials sent to the markets that the Fed is not ready...
I’ve discussed the risk of transitory disinflation before, and it manifested itself in the form of hotter-than-expected January CPI and PPI reports. The reports rattled the bond market and expectations of the first quarter-point rate cut has been pushed out from May to June and a slower rate cut trajectory for the remainder of year....
Mid-week market update: I told you that there would be volatility (see Numerous wildcards add up to ST volatility). In light of signs of stretched positioning, the prudent course of action for traders is to step to the sidelines. Here are the different sources of volatility that are buffeting the markets. ...
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...
As the 10-year Treasury yield flirts with the 4% level and the yield curve steepens from its inverted condition, it’s worthwhile to keep in mind that the universe is unfolding as it should. Monetary conditions are tight, inflation is moderating, the jobs market, though tight, is weakening, and the economy is chugging along with no...
The S&P 500 staged an upside breakout in December through a cup and handle pattern but it was rejected at all-time-high resistance, which is a somewhat disappointing development. Instead of worrying about whether it can rally through resistance, here is another index that staged a cup and handle breakout, but to all-time-highs. It’s...
Mid-week market update: I know that this is a trite expression, but the easy money has been made. The rally off the October bottom has been astounding. My trading model was fortunate enough to spot the exact day of the bottom when insiders started buying an oversold market. The rally enjoyed further tailwinds in...
The Fed has clearly pivoted. It indicated at its December FOMC meeting that, for all intents and purposes, it was done hiking and the “dot plot” is projecting three quarter-point rate cuts in 2024 against a soft landing backdrop. Fed Chair Jerome Powell was given ample opportunity to push back against the dovish narrative. Instead,...
Mid-week market update: The Fed delivered a dovish pause today. In addition, Powell was given opportunities to push back with bearish scenarios, such as raising concerns over the recent risk-on rally as a sign that financial conditions are loosening, or the elevated levels of super-core inflation, but he declined to do so. It is becoming...
The Zweig Breadth Thrust buy signal in early November sparked a price surge and a price momentum chase. Already, the S&P 500 made a late-day charge above 4600 for a new recovery high. The price momentum factor is defined as stocks that beat the market continue to beat the market. The red line in...
Gold bulls became very excited when gold prices tested overhead resistance at the 2000–2100 level. In the past, such tests had been met with selling pressure, but technical analysts would interpret a definitive breakout at these levels as opening the door to significant upside. Moreover, the bottom panel of the accompanying chart shows that...
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...
About a week ago, market anxiety was high over surging Treasury yields, which was attributed to concerns over a soaring fiscal deficit and a rising supply of Treasury paper. This led to upward pressure on the term premium, or compensation for holding longer duration assets, and real yields. Here’s what has happened since...
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