The June CPI and PPI reports both came in higher than expectations. The good news is core CPI is decelerating. The bad news is both core sticky price CPI and Owners' Equivalent Rent, which is about one-third of core CPI, are rising rapidly. These readings confirm the market's expectations that the Fed will continue...
One of the key risks to the stock market is earnings expectations. As recession risk rises, it has been unusual to see forward 12-month EPS estimates continue to rise. The latest update finally shows that earnings expectations are beginning to stall. S&P 500 estimates are flat for the week, up a miniscule 0.01, while small-cap...
Even before the FOMC meeting and in a survey period that ended on June 10, 2022, which was the day of the hot May CPI print, the respondents to the BoA Global Fund Manager Survey showed a high degree of anxiety about a recession. Here is the bad news. At the post-FOMC meeting...
Mid-week market update: Can the stock market follow the script for past FOMC meetings in 2022? In each of the cases this year, the market weakened ahead of the meeting and rallied afterwards. The only deviation from the script occurred at the May FOMC meeting, when stock prices fell to new lows after a post-meeting...
I know that Friday's CPI print was ugly, but it seems to have sparked a "correlations converging to 1" liquidation panic where everything is getting sold today. The good news is such panics usually don't last long. Several readers highlighted analysis from Rob Hanna of Quantifiable Edges of a rare Inverse Zweig Breadth Thrust....
I have pointed out before that the last time the 10-year Treasury yield was at these levels, the S&P 500 was trading at a forward P/E of 14-16. The current forward P/E is 16.8, which is slightly above that range. In order for stock prices to rise, at least one of two things has to...
Mid-week market update: As the S&P 500 consolidates its gains in a narrow range after its surge last week, it has been a frustrating time for both bulls and bears. As investors wait for either the breakout or breakdown from the range, here are the bull and bear cases. A mixed...
The recent price surge in late May off the bottom produced a flurry of excitement among technical analysts. Extreme price momentum is known as a breadth thrust in chartist circles. Depending on the magnitude of the breadth thrust, they are often signals of new bull markets. Marty Zweig detailed what became known as the...
Now that the S&P 500 has started to turn up after bouncing off a head & shoulders downside target. Green shoots are starting to appear for the bulls, is it time for investors to buy stocks and bottom fish? Rising recession fears Let's begin with why the market weakened. Recession fears were...
Legendary investor John Templeton once said: Bull markets are born on pessimism, grown on skepticism, mature on optimism and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell. Where are we in the market cycle? From a long-term...
One of the main elements of my Trend Asset Allocation Model is commodity prices as a real-time indicator of global growth. As well, John Authers recently wrote, "The commodity market is a real-time attempt to assimilate geopolitical developments, growth fears, and shocks to supply and demand, so it’s an important place to look for the...
Mid-week market update: Happy Price Stability Day to you! Ahead of the FOMC meeting, I had been pounding the table that market expectations were unrealistically hawkish. The market was discounting strong rate hikes well beyond the Fed's stated median neutral rate of 2.4%, according to the March Summary of Economic Projections. Combine...
Since the publication of my weekend trading update (see Will the Fed rally or tank markets?), a number of additional sentiment readings have come to light that may be relevant to traders and investors. The historic almost off-the-chart levels of bearishness of the AAII weekly sentiment survey has been known for several days, but there's...
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 Economist is becoming known as a source of the contrarian magazine cover indicator. As the world holds its collective breath for the FOMC decision next week, the recent cover of the magazine begs a number of important questions for investors. How far beyond the inflation-fighting curve is the Fed? What are the likely policy...
Recession fears have arrived on Main Street. From a statistical perspective, Google searches for "recession" have spiked. From an anecdotal perspective, recession talk has emerged as the talk of the party. These conditions beg three crucial questions for investors: Will there be a recession? If so, how much of the slowdown...
Mid-week market update: Cyclical industries have caught a bid in the last week. That's not a big surprise as they have been badly clobbered relative to the market. Transportation stocks exhibited impressive strength as they regained relative support turned resistance level. However, the relative performance of all of the other industries was either below relative...
In bull markets, valuation generally doesn`t matter very much unless it reaches a nosebleed extreme, such as the NASDAQ Bubble. In bear markets, valuation defines the downside risk in equity prices. As the Powell Fed has signaled it is dead set on a hawkish policy that does not preclude inducing a recession, valuation will...
Take a look at this mystery chart. Is that a bullish or bearish pattern? This chart is just the start of my nine reasons to be bearish on risk assets. My analysis is mainly based on real-time pricing signals from the market and relies less on fundamental or macro analysis. This is a...
An unusual divergence has appeared between the VIX Index and MOVE, which measures the implied volatility of the bond market. While MOVE has spiked, VIX has fallen. The difference in the two indicators can be explained by two forces that affect markets today, namely geopolitical risk and macro risk as defined by the...
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