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:...
Mid-week market update: Evidence of a negative seasonal pattern has been circulating on the internet for the S&P 500. As one of many examples, LPL Financial pointed out that the S&P 500 has typically topped out in early August and slides into late September. While past performance is no guarantee of future returns,...
The Chinese markets panicked on the news of government crackdowns on technology and education companies. As well, Beijing has been working to restrict the flow of credit to property developers in order to stabilize real estate prices. In reaction, foreigners have been panic selling Chinese tech on high volume. Despite all of this...
It is astonishing to see the market narrative shift in the space of only a few months from "inflation is coming" to a growth scare. In late March, the 10-year Treasury yield topped at over 1.7% and the 2s10s yield curve was steepening. Today, the 10-year has decisively broken support and the yield curve is...
Stock markets were rattled by the Fed's hawkish tone in the wake of the FOMC meeting. Markets took a risk-off tone, but Jerome Powell walked back some of the hawkishness during his Congressional testimony the following week. The Fed Chair stuck to his familiar refrain that inflation is transitory, dismissed the idea of 1970s-style inflation as...
The headlines from last week sounded dire. It began when China’s May economic activity report was disappointing, with industrial production, retail sales, and fixed-asset investment missing market expectations. Then the Federal Reserve took an unexpected hawkish turn. The statement from the FOMC meeting acknowledged that downside risks from the pandemic were receding as vaccination...
Mid-week market update: It's always difficult to make any kind of coherent market comment on FOMC meeting days. The market reaction can be wild and price moves can reverse themselves in the coming days. Nevertheless, experienced investors understand that it's not the announcement that matters, but the tone announcement compared to market expectations. Bloomberg...
Remember when I called for a bond market rally (see What a bond market rally could mean for your investments). The 10-year Treasury yield broke support last week and shrugged off a hot CPI print. Is the bond market tempting FAIT, or the Fed's Flexible Average Inflation Targeting framework? Here are some of...
Rising inflation fears are all over the headlines. From a top-down perspective, inflation pressures are clearly rising. The Transcript, which monitors earnings calls, documented companies reporting rising inflationary pressures from supply chain bottlenecks and commodity price strength, which have the potential to create margin squeezes. “…the inflationary pressures, particularly surrounding some of...
Jerome Powell may turn out to be the Un-Volcker Fed Chair. Paul Volcker wrung all the inflation expectations out of the system and convinced everyone that the Fed is an inflation hawk. By contrast, Jerome Powell is attempting a mirror image policy of convincing everyone the Fed is an inflation dove. A considerable gulf...
In light of last week's partial NASDAQ reversal, I had a number of discussions with readers about whether the reflation trade has become overly consensus and crowded. To be sure, bond prices have become wildly oversold while the cyclically sensitive copper/gold ratio has surged upward and appears extended. Is the reflation trade, which...
The latest BoA Global Fund Manager Survey shows that respondents believe the biggest tail-risks to be inflation and its effects on the bond market. Are these worries overblown? How will these concerns affect asset prices? How transitory are inflation pressures? Recently, there has been a spate of reports about rising supply...
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