Why is the S&P 500 so resilient? Brent oil prices have breached the $100 level, but the index has only fallen about -7% on a peak-to-trough basis. The apparent divergence has led to a number of Street economists and strategists to call for a deeper pullback based on rising recession risk. From a top-down...
I have a constructive outside-the-box modest proposal, in light of all the recent hand wringing about how to open the Strait of Hormuz, the recent Economist cover, and the latest 60 Minutes story about the difficulties that the U.S. faces in opening the Strait. Is it time for a TARP-style government financial engineering,...
In the wake of Gulf War III, the odds of a U.S. recession in 2026 have spiked in the betting markets. Even though the implied recession probability has retreated, they are nevertheless elevated. Economic recessions are bull market killers. What are the chances of an oil shock-induced recession? Here are the bull and...
Mid-week market update: I wrote on the weekend that the Trump Administration was on the verge of a TACO (Trump Always Chickens Out) pivot. The market had the hint of a TACO on March 9, when he told CBS: “I think the war is very complete, pretty much”, but changed his tune hours later: “we’ve...
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...
Mid-week market update: The delayed Jobs Report came in much higher than expectations this morning. The knee-jerk reaction in the pre-opening hours was risk-on, but the market reconsidered its view and pulled back after the open. Once again, the S&P 500 has failed to break out to the upside, though the equal-weighted S&P 500...
When the markets became rattled by the prospect of a Trump threat to annex Greenland over the weekend, I knew that a TACO (Trump Always Chickens Out) walk back was inevitable. I observed in the past that the markets would eventually discipline Trump’s unusual excesses. Indeed, the combination of a spiking 10-year Treasury yield and...
Emerging market shocks follow a familiar pattern in quantitative investing. When the event occurs, quantitative factor responses in stock selection get thrown out the window. As the smoke clears, top-down strategists map out the direction and magnitude of the shock, and technical analysis factors like price momentum and reversals start to work. As the magnitude...
The accompanying chart from Jeffrey Hirsch of Almanac Trader shows the expected seasonal price pattern for the S&P 500. As with any seasonality analysis, direction is more important than the magnitude of the move. If history is any guide, expect a volatile year until October, followed by a rally into year-end. I agree with...
Mid-week market update: The combination of the Quarterly Census Employment and Wages (QCEW) weakness and a soft PPI report has moved the market to expect to at least a quarter-point rate cut at the FOMC meeting next week. There are even whispers that the Fed may even move by a half-point, though the odds is...
So far, the Middle East truce is holding and oil prices have begun to normalize. An Economist article featured analysis from the Ceasefire Group that studied ceasefires between 1989 and 2020 and found about half were successful, one-third collapsed and the outcome of the remainder were inconclusive. Of Middle East ceasefires, about half failed. ...
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 exhibited a surprise price reversal on the weekly chart. After violating an uptrend line that stretches back to the COVID Crash bottom which scared the living daylights out of a lot of investors, the index staged an upside reversal while the weekly stochastic recycled from oversold to neutral, which has been a...
Oil prices have jumped over $6 a barrel since the Hamas attack on Israel as a geopolitical risk premium became embedded in the oil price. The surprise attack brought up memories of the Yom Kippur War 50 years ago, in which the armies of Egypt and Syria launched a simultaneous surprise attack on Yom Kippur...
Mid-week market update: Geopolitical risks are rising and it remains to be seen how the market reacts to geopolitical stress. On the weekend, I made the following tweet. Those fears are becoming more real. Ukrainian President Zelensky stated in a tweet, "Now we have information from our intelligence that the Russian military has placed...
Two weeks ago I highlighted how history shows that the stock market only bottomed after recessions have begun (see How to spot the stock market bottom) and a recession is likely on the way in H2 2023. If that is the case, U.S. equities should bottom at some point this year and a recovery should...
The recent OPEC+ decision to cut oil output by 2 million barrels per day is giving me a case of PTSD from a Yom Kippur long ago. In October 1973, the stock market was just getting over a case of Nifty Fifty growth stock mania. Arab armies, led by Egypt and Syria, made a surprise...
Mid-week market update: The Fed has spoken. As expected, it hike interest rates 75 bps. In its Summary of Economy Projections (SEP), it sharply lowered GDP growth for this year and it raised the Fed Funds projection to 4.4% for this year and 4.6% next year, which are both ahead of market expectations. In other...
Mid-week market update: Here we go again. Just when you thought world events were under control, House Speaker Nancy Pelosi's visit to Taiwan raised the geopolitical risk premium. And just as I predicted on the weekend (see In what world is fighting the Fed a good idea?), we've had a cacophony of Fed...
I received considerable feedback from readers in response to my publication, Bearishness, begone!. They expressed concern over the terrifying spike in European natural gas prices. In response to the EU's support for Ukraine, Russia has weaponized its energy exports. Gazprom has already reduced Nord Stream 1 gas flows to 20% of capacity. What happens this...
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