Fed Minutes Fuel Market Rally As Major Indexes Surge

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the market

The markets attempted to build on yesterday’s recovery, with major indexes starting the day on a positive note.

This momentum was boosted by the release of the Federal Reserve’s September meeting minutes, which revealed that most participants favored a larger 0.5% rate cut over a more modest 0.25%. This news fueled bullish sentiment, leading to a strong market performance, with the Dow taking the lead and the S&P 500 reaching another all-time intraday high.

Overnight, however, China’s indexes declined, with their large-cap ETF dropping 2% following the previous day’s sharp selloff.

Wall Street’s recovery on Tuesday was driven by gains in the tech sector and a significant pullback in oil prices, which continued into today. Traders remain optimistic that the Fed can achieve a soft landing, a view primarily supported by last week’s headline jobs report showing continued strength in the labor market. However, a closer examination of prior revisions suggests this optimism may be misplaced.

The MAG7 basket continued its recovery from Monday’s plunge, while bond yields rose again, with the 10-year yield closing at 4.077%, well above the critical 4% level.

The dollar maintained its upward trajectory, reaching its highest point since August. This strength in the dollar weighed on gold and Bitcoin prices, both of which slipped, with Bitcoin testing the $61,000 level. Crude oil also retreated from Monday’s high.

Meanwhile, the U.S.’s foreign default risk reached its highest point since December, and despite the Fed’s rate cut, mortgage rates surged back up to nearly 7%, offering no relief to homebuyers.

Go figure…

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Oil Price Drop Fuels Market Rebound Amid Persistent Uncertainties

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

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Oil prices dropped by over 4%, which helped equities rebound after yesterday’s losses. Despite ongoing tensions, Israel has yet to retaliate.

Bond yields rose slightly, but not enough to prevent a market recovery, with the Nasdaq leading the charge. The Middle East conflict, upcoming elections, hurricane damage, and other uncertainties are expected to increase market volatility.

Traders remain optimistic about the economy’s resilience, even though many indicators suggest otherwise. For instance, buying conditions for houses and vehicles have plummeted to levels not seen since the 1980s, highlighting consumer struggles:

Given that consumer activity accounts for 67% of economic activity, such data does not indicate a robust economy.

The major indexes made a strong comeback, even as China’s markets fell overnight. The S&P 500 erased all of yesterday’s losses, and the MAG 7 stocks recovered but remained within their two-week trading range.

Bond yields paused their recent surge, ending mixed, with the 10-year yield closing at 4.021%, its highest since July. The dollar broke out of its three-day trading range but weakened towards the end of the session.

The dollar’s strength negatively impacted gold, which bounced off its $2.6k support level. Bitcoin also fell, giving up yesterday’s gains.

While the markets absorbed China’s mini-crash, upcoming events like the CPI report on Thursday and the start of the earnings season on Friday could disrupt positive trading sentiment.

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Rising Bond Yields And Oil Prices Drag Major Indexes Down

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

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The financial markets were significantly impacted by climbing bond yields and surging oil prices, which drove the major indexes down throughout the session.

The 10-year yield rose above the 4% mark for the first time since August, rebounding from a low of 3.60% in September. This sharp increase comes despite the Federal Reserve’s efforts to lower rates.

Last week was turbulent, with only modest gains for the averages. However, a better-than-expected jobs report, at least in terms of the headline number, has led traders to believe that the Fed might achieve a soft landing for the economy.

While this outcome remains uncertain, the long-term trend is still upward, and we plan to stay the course until it changes. The Fed’s minutes from its last meeting will be released on Wednesday, followed by the Consumer Price Index (CPI) report on Thursday.

Expectations for rate cuts plummeted, causing all major indexes to decline. The MAG7 basket was also affected by Google’s weakness due to an app store injunction requiring them to open their app store to competition.

The most shorted stocks fell, erasing Friday’s gains. Bond yields surged further, with both the 2-year and 10-year yields piercing the 4% level. Interestingly, the dollar remained stable, and gold stayed within its recent trading range.

Bitcoin exhibited volatility, rallying, and then receding twice, influenced by the Google headlines.

Meanwhile, the risk of a U.S. foreign default continues to rise.

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ETFs On The Cutline – Updated Through 10/04/2024

Ulli ETFs on the Cutline Contact

Do you want to know which ETFs are hot and which ones are not? Then you need my High-Volume ETF Cutline report. It tells you how close or far each of the 311 ETFs I follow is from its long-term trend line (39-week SMA). These are the ETFs that trade more than $5 million a day, so they are not some obscure funds that nobody cares about.

The report is split into two parts: The winners that are above their trend line (%M/A), and the losers that are below it. The yellow line is the line of shame that separates them. You can see how many ETFs are in each group and how they have changed since the last report (274 vs. 280 current).

Take a peek:

The HV ETF Master Cutline Report

If you are confused by some of the terms we use, don’t panic. I have a helpful Glossary of Terms for you. If you want to learn more about the Cutline method and how it can make you rich (or at least less poor), read my original post here.

ETF Tracker Newsletter For October 4, 2024

Ulli Market Commentary Contact

ETF Tracker StatSheet          

You can view the latest version here.

GOVERNMENT JOBS SOAR, PRIVATE SECTOR GROWTH LAGS

[Chart courtesy of MarketWatch.com]

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The much-anticipated jobs report exceeded expectations, driving major indexes higher. However, the question remains: how much will these figures be revised in the future? Historically, six out of the last seven releases have been significantly downgraded.

Nonfarm payrolls surged by 254,000 jobs last month, far surpassing the expected 150,000 and marking the largest increase since March. The unemployment rate also improved, dropping to 4.1% from 4.2%.

Traders reacted positively to this news, interpreting it as a sign of a robust labor market and a resilient economy. This optimism persists despite ongoing issues such as record layoffs, bankruptcies, soaring food prices, and struggling consumers.

A closer examination of the jobs report reveals fewer encouraging details. Government employment saw a record increase, while private sector job growth was limited to 133,000, reflecting the current challenges in the labor market.

The US Citi Surprise Index turned positive this week, with rate-cut expectations plummeting and bond yields surging. The 10-year yield, which had recently dipped to 3.60%, rebounded sharply towards the critical 4% threshold, last seen in August. This movement strengthened the dollar, which rose for five consecutive days, but it also led to declines in gold and Bitcoin prices.

Amid persistent Middle East tensions, crude oil prices spiked, achieving their best week since October 2022.

Despite the positive jobs report, concerns about the increasing risk of a US sovereign default remain. Will this risk diminish as it did after peaking in May, or is this time different?

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 10/03/2024

Ulli ETF StatSheet Contact

ETF Data updated through Thursday, October 3, 2024

How to use this StatSheet:

  1. Out of the 1,800+ ETFs out there, I only pick the ones that trade over $5 million per day (HV ETFs), so you don’t get stuck with a lemon that nobody wants to buy or sell.
  1. Trend Tracking Indexes (TTIs)

These are the main indicators that tell you when to buy or sell Domestic and International ETFs (section 1 and 2). They do that by comparing their position to their long-term M/A (Moving Average). If they cross above, and stay there, it’s a green light to buy. If they fall below, and keep going, it’s a red light to sell. And to make sure you don’t lose your shirt if things go south, I also use a 12% trailing stop loss on all positions in these categories.

  1. All other investment areas don’t have a TTI and should be traded based on the position of each ETF relative to its own trend line (%M/A). That’s why I call them “Selective Buy.” In other words, if an ETF goes above its own trend line, you can buy it. But don’t forget to use a trailing sell stop of 12%, or less if you’re feeling nervous.

If some of these words sound like Greek to you, please check out the Glossary of Terms and new subscriber information in section 9.

  1. DOMESTIC EQUITY ETFs: BUY— since 11/21/2023

Click on chart to enlarge

This is our main compass, the Domestic Trend Tracking Index (TTI-green line in the above chart). It has broken above its long-term trend line (red) by +7.80% and is in “Buy” mode as posted.

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