- Moving the markets
After a flat session yesterday, gravity set in and pulled the major indexes into a deep hole, with the Dow being down over 500 points early on. A slow recovery helped lessen the pain, but in the end, losses exceeded 1% with the S&P 500 faring the worst.
Right after the opening bell, the bears took control of the market direction, supported by a host of issues—and south we went.
Contagion in the regional banking sector returned, as the stability of smaller regional institutions was on traders’ minds. The regional bank index KRE got hammered, as some of its members imitated their best bungee jump—without much bungee.
Even some of the big banks participated in this contest, followed by the majors, as a short squeeze was nowhere in sight to save equities. Bond yields collapsed, with the 10-year dropping 14 basis points to close at 3.43%, thereby pulling rate hike expectations off their lofty levels.
The Fed’s 2-day meeting contributed to this chaotic session, even though it is widely expected that they will increase rates again by 0.25% tomorrow at 11 am. The big question is whether they will give any clues as to a potential pause, or if their resolve to fight inflation outweighs recessionary fears.
Adding to today’s turmoil was the unexpected announcement by the Central Bank of Australia to hike their benchmark rate. Then it was Treasury Secretary Yellen’s turn to add more fuel to the fire, which she did by announcing that the country may hit its debt ceiling much sooner than expected, namely a month from now. Ouch!
The US Dollar dipped, and Gold ripped with the precious metal reclaiming its $2k level and scoring a 3-week high.
Who knows what tomorrow will bring, but I am pleased that on this volatile day, our portfolios managed to eke out a moderate gain. Once the Fed’s decision is published, we could see markets pump or dump some 1.5-2%.
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 got spanked with the Domestic version again moving to within striking distance of a potential “Sell” signal. We will likely get more directional input once the Fed announces its interest rate policy tomorrow.
This is how we closed 05/02/2023:
Domestic TTI: +0.53% above its M/A (prior close +2.06%)—Buy signal effective 12/1/2022.
International TTI: +6.21% above its M/A (prior close +7.45%)—Buy signal effective 12/1/2022.
All linked charts above are courtesy of Bloomberg via ZeroHedge.
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