- Moving the markets
Continued weak economic data points soured traders’ motivation to drive the indexes higher. As a result, the Nasdaq recorded its 3rd straight loss, while only the Dow was able to eke out a green close.
The latest ADP private payroll report was another disappointment, after yesterday’s dreadful data, because it showed slowing job growth. The Services survey also took a dive from 55.1 to 51.2, a huge dip considering the expectations of 54.4.
What a difference a month makes. As ZH pointed out, during February, the US Macro Data Surprise Index hovered solidly in green territory, but now this indicator is deeply entrenched in the red, meaning that the much-ballyhooed soft landing may not be playing out as anticipated.
And the Fed’s Loretta Mester was talking out of both sides of her mouth:
Yesterday – MESTER: FED WILL NEED TO GET RATES UP ‘A LITTLE BIT MORE’, SEES FED-FUNDS RATE ABOVE 5%, HOLDING FOR SOME TIME
Today – MESTER: TOO SOON TO SAY WHETHER FED WILL RAISE RATES IN MAY, HOPING WE DON’T TIGHTEN UNTIL SOMETHING BREAKS
Ah yes, a classic case of walking back the talk and shifting from hawkish to dovish.
Given the weakening economic environment, the markets are now counting on lower rates ahead with a Terminal Rate of 4.9% in May, which is to be followed by 4 rate cuts to 4% by the end of this year. Of course, this is not chiseled in stone, and a host of events could derail these assumptions.
Bond yields dumped after the ADP release, with the 2-year first retreating to 3.64% before rebounding to 3.8%. Despite the overall dovish sentiment, the US Dollar bounced back moderately, as Gold surpassed $2,030 but pulled back to end the session at $2,037, essentially unchanged.
Tomorrow will be the last trading day of this week, due to markets being closed on Good Friday.
2. “Buy” Cycle Suggestions
For the current Buy cycle, which started on 12/1/2022, I suggested you reference my then current StatSheet for ETF selections. However, if you came on board later, you may want to look at the most recent version, which is published and posted every Thursday at 6:30 pm PST.
I also recommend you consider your risk tolerance when making your selections by dropping down more towards the middle of the M-Index rankings, should you tend to be more risk adverse. Likewise, a partial initial exposure to the markets, say 33% to start with, will reduce your risk in case of a sudden directional turnaround.
We are living in times of great uncertainty, with economic fundamentals steadily deteriorating, which will eventually affect earnings negatively and, by association, stock prices.
In my advisor’s practice, we are therefore looking for limited exposure in value, some growth and dividend ETFs. Of course, gold has been a core holding for a long time.
With all investments, I recommend the use of a trailing sell stop in the range of 8-12% to limit your downside risk.
3. Trend Tracking Indexes (TTIs)
Our TTIs slipped a tad but remain on the bullish side of their respective trend lines.
This is how we closed 04/05/2023:
Domestic TTI: +1.12% above its M/A (prior close +1.33%)—Buy signal effective 12/1/2022.
International TTI: +7.19% above its M/A (prior close +7.60%)—Buy signal effective 12/1/2022.
All linked charts above are courtesy of Bloomberg via ZeroHedge.
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