What’s bothering the bond market? The 10-year Treasury yield (blue line) has shot up to levels last seen just before the GFC. The surge in yields has occurred just as investors are seeing better news on inflation. At the same time, core PCE (red line) has been falling. Shouldn’t that be good news for the...
As the Street parsed Powell’s Jackson Hole speech and obsessed over whether the Fed would raise an additional quarter-point, the annual Fed symposium at Jackson Hole is meant for central bankers to consider Big Ideas which reflect the concerns of the day. The centrepiece of such ideas was usually an academic paper. As an...
As at the time of writing, the White House and the Republican-led House haven’t come to a debt ceiling deal yet, though both sides are getting closer to a deal. But you only die once, and focusing on the fear of a catastrophe isn’t very useful. Hedging only works if there is someone you can...
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...
Four weeks ago, I suggested that investors buy to the sound of cannons. Now that the cannons have sounded, is that still a good idea? Yes, but there's a catch. A detailed list of past crises from Ed Clissold of Ned Davis Research reveals that stock prices usually rebound strongly after sudden shocks such...
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 S&P 500 fell as much -4% from its all-time high in Evergrande panic pullback last week. Is the recent weakness just typical seasonal weakness or something more serious? The intermediate-term breadth looks disconcerting. The percentage of S&P 500 stocks above their 200-day moving average (dma) had been at the 90% level which indicates a...
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...
As the infrastructure and budget bills make their way through Congress, I was surprised to see that the latest BoA Global Fund Manager Survey did not mention a corporate tax increase as a key risk to the S&P 500. The Biden tax proposals have been well telegraphed and most of the details have...
The S&P 500 took fright last Monday and skidded -1.6% after falling -0.8% the previous Friday. Talking heads attributed the decline to worries about the rising incidence of the Delta variant around the world. Fears over the Delta variant slowing economic growth are overblown. However, there are two other key risks that equity...
Both the June CPI and PPI came in hot and well ahead of expectations. There was the inevitable debate about the transitory nature of the price increases. Looking longer-term, however, the conventional models for explaining inflation have been unsatisfactory. Notwithstanding the numerous failures by Japanese policymakers, consider the US as another example. Let's begin...
How expensive are US equities? Fed Governor Lael Brainard warned about "stretched valuations" in the preamble to the May 2021 Financial Stability Report: Vulnerabilities associated with elevated risk appetite are rising. Valuations across a range of asset classes have continued to rise from levels that were already elevated late last year...The combination of stretched...
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...
If you thought that Biden would govern as a centrist, you were wrong. In the wake of the passage of a $1.9 trillion stimulus package, President Joe Biden is planning to attack the enduring challenge of inequality by expanding government spending with a second ambitious $3 trillion economic renewal plan and a revamp of the tax...
Jerome Powell's Congressional testimony last week made the Fed's position clear. Monetary policy will remain easy for the foreseeable future. Inflation dynamics change, but not on a dime. While Fed policy will leave short-term interest rates anchored near zero, the market's inflation expectations have been rising. Last week, the 10-year Treasury yield briefly breached 1.6%...
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. ...
Last weekend, I conducted an unscientific and low sample Twitter poll on the market perception of the Georgia special Senate elections. The results were surprising. Respondents were bullish on both a Republican and Democratic sweep. As the results of the Georgia Senate race became clear, the analyst writing under the pseudonym Jesse Livermore...
I hope that I haven't offended the market gods. Just after my bullish call for a cyclical recovery (see Everything you need to know about the Great Rotation but were afraid to ask), a number of contrary data points have appeared to cast doubt on the reflation thesis. The markets were jolted by the...
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...
House Speaker Nancy Pelosi has set a Tuesday deadline for an agreement for a coronavirus stimulus package before the election. Recent data begs the question of whether more stimulus is even needed. Last Friday's retail sales print was astonishingly strong and beat market expectations. While retail sales statistics are notoriously noisy, September retail sales...
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