Higher for longer

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...

What’s “Black Swan” in Chinese?

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...

How a war of conquest has become a contest of pain

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...

Bearishness begone!

The returns of my Trend Asset Allocation Model have been strong. Based on an "out of sample" record of signals from 2013 and a simulated portfolio that varies up to +/- 20% from a 60/40 benchmark, the model portfolio has managed to achieve equity-like returns with 60/40-like risk. Performance has also been consistently positive in...

The commodity canary in the coalmine is falling over

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...

What matters more, the war or the Fed?

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...

Sell to the sound of trumpets?

Mid-week market update: Before the war began, I wrote that investors should Buy to the sound of cannons. Historically, investors have been rewarded by buying sudden geopolitically related downdrafts. The corollary is "sell to the sound of trumpets", or news of peace.   US equity indices across all market cap bands staged upside breakouts through...

Imagining War and Peace

The Russia-Ukraine war has dealt an unexpected shock to the global economy and markets. Even as the world began an uneven recovery from the COVID Crash of 2020 and inflation pressures began to rise, the war has spiked geopolitical risk premiums and exacerbated supply chain difficulties and added more inflationary pressures. From an economic perspective,...

Great (bearish) expectations

Mid-week market update: The bears have exhibited great expectations for risk assets. Ed Clissold of Ned Davis Research observed that the NDR Crowd Sentiment has been at a sub-30 reading, which is historically bullish. However, he pointed out that momentum is negative and hedged with "sentiment is extremes differ cycle to cycle, so it's best...

Beware the Ides of March

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...

A double bottom?

Mid-week market update: The S&P 500 put in a potential double bottom when it tested its recent lows while exhibiting a positive RSI divergence. Stock prices rallied on the news of a ceasefire in order to allow civilians to evacuate.     Is this a durable bottom?     News from the front The market...

An energy and geopolitical recession?

Much has happened in the space of a week. In the wake of Russia's Ukrainian invasion, the West has responded with a series of tough sanctions designed to tank the Russian economy. Energy and other commodity prices have soared and this is shaping up to be another energy and geopolitical crisis. The last three episodes...

Wars are equity bullish, but there’s a catch…

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...

Three questions to ask as fear spikes

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...

What’s the market pricing in?

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...

The USD’s exorbitant privilege

For the crypto folks who embrace the libertarian philosophy of using a medium of exchange not issued by any national government, here are a couple of reminders of what the USD "exorbitant privilege" means in real life.    First, the Canadian extradition hearing for Huawei CFO Meng Wanzhou finally ended yesterday after nearly three years...

Emerging tail-risk: An invasion of Taiwan

I am not in the habit of peddling conspiracy theories, but this is inadvertently becoming a Halloween tradition. Last Halloween, I wrote about how China could control Taiwan without firing a shot (see Scary Halloween story: How a weak USD could hand China a major victory). This year, a new geopolitical tail-risk is materializing for investors...