Stock market pullbacks happen. The normal equity risk of pullbacks is the price investors pay for better long-term performance. But a recent analysis by Oxford Economics found that the average S&P 500 pullback during non-recessionary periods is -15.4% and -36% during recessions. Here is why this matters for equity investors. The recent peak-to-trough...
Mid-week market update: The stock market has been extremely oversold for the past few days, but one element had been missing for the short-term, namely a sentiment capitulation and wash-out, which may have finally appeared. The latest Business Week cover may be the classic contrarian magazine cover indicator of a developing bottom. ...
As the stock market looks forward to another exciting week of volatility, the technical damage suffered by the market is quite severe. Nevertheless, investors need to take a deep breath and ask, "What's the market pricing in?" The three major factors I consider in my analysis are: Earnings and valuation; Fed policy; and...
In the past week, several readers have asked whether it's too late to be buying financials, value, and other cyclical stocks. In reply, I highlighted the recent Mark Hulbert column, "Value stocks now are beating growth by 10 points, but the easy money might be behind us", namely that the value/growth reversal may not necessarily have...
As 2021 drew to a close, the broadly based Wilshire 5000 flashed a particularly long-term sell signal in the form of a negative 14-month RSI divergence. The last time this happened was in August 2018 (see Market top ahead? My inner investor turns cautious). Stock prices continued to rise for another two months before it hit...
Mid-week market update: As 2022 opens, I have become increasingly cautious about the stock market. The put/call ratio (CPC) is a bit low, indicating rising complacency. Past instances of a combination of a rapidly falling CPC and low CPC have seen the market struggle to advance. While this is not immediately bearish, it is a...
As the S&P 500 rises to fresh all-time highs, an important risk is lurking in the form of a more hawkish Fed. Inflation is running hot. When the Fed was officially in the transitory camp earlier this year, inflation pressures were concentrated in only a few components such as used cars. Today, price increases are...
The Fed has spoken by pivoting to a more hawkish trajectory for monetary policy. The FOMC announced that it is doubling the scale of its QE taper, which puts the program on track to end in March. The December median dot-plots show that Fed officials expect three quarter-point rate hikes in 2022 and three quarter-point...
Mid-week market update: I don`t have very much to add beyond yesterday`s commentary (see Hawkish expectations). Ahead of the FOMC announcement as of the Tuesday night close, fear levels were elevated. The market`s retreat left it oversold or mildly oversold, such as the NYSE McClellan Summation Index (NYSI). Both the NYSE...
Ahead of tomorrow's FOMC decision, market expectations are turning bearish. Even as the S&P 500 consolidated sideways, defensive sectors are all starting to show signs of life by rallying through relative performance downtrends. Hawkish fears A CNBC poll found that the consensus expects the Fed to double its taper, which would end...
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...
Stock markets were recently sideswiped by the dual threat of a new Omicron strain of COVID-19 and Jerome Powell's hawkish pivot. Global markets adopted a risk-on tone and the S&P 500 pulled back to test its 50-day moving average. This week, I assess the damage that these developments have done to the investment...
Mid-week market update: I told you so. Earlier in the week, I wrote that the market had become overly hawkish about interest rate expectations (see Hawkish expectations). Leading up to the November FOMC meeting, the Fed had signaled that a QE taper is about to begin and, if everything goes along with projections, the first...
Short-term rates are freaking out. 2-year yields are rising based on the expectation of a tightening bias by global central bankers. The market should gain greater clarity on central bank intentions soon. Both the Fed and the BoE will announce their interest rate decisions this week and the BLS will report Non-Farm Payroll...
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...
Recently, a number of major investment banks have published warnings for the US stock market. The strategists at BoA, Citigroup, Credit Suisse, Deutsche, Goldman Sachs, and Morgan Stanley have issued either bearish or cautionary outlooks. On the other hand, Ryan Detrick at LPL Financial documented the effects of strong price momentum on stock prices. History...
Now that a QE taper announcement is more or less baked-in for this year, the next question is when the Fed will raise rates. The July FOMC minutes highlighted the point that the criteria for a taper decision is entirely different from that for a rate hike. Several participants emphasized that an announcement of...
One of my principal tools of market analysis is the use of trend-following techniques to spot changes in macro conditions. My models are seeing some early green shoots in the value and reflation trade. It began with the stronger than expected July Jobs Report. The subsequent tame core CPI print also helped to reinforce the...
Mid-week market update: I have been relatively constructive on the stock market in recent weeks, but I am going to do something different this time. Aside from the obvious negative RSI divergences to the rising S&P 500, what are the downside risks to this bull? There are many to consider. Technical...
There has been much debate over the usefulness and viability of crypto-currencies. Notwithstanding my opinion on the topic, the current crypto-currency ecosystem has an Achilles Heel of Lehman Crisis proportions. It's called Tethers, which is a stablecoin used as a critical piece of plumbing in the offshore crypto markets. This week, I explain:...
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