- Moving the markets
Bank stocks BoA and NY Mellon beat earnings expectations and lifted the market mood, while the short squeeze craze fizzled out. Morgan Stanley and PNC Financial also impressed investors with strong results, especially in wealth management for Morgan Stanley.
According to FactSet, the earnings season is off to a flying start with 84% of the S&P 500 companies that have reported so far surpassing profit estimates. Even a disappointing retail sales report for June, which showed a paltry 0.2% MoM increase vs a forecast of 0.5%, could not dampen the optimism.
The Dow led the way, but all major indexes posted solid gains, as traders believe that the economy is in a “Goldilocks” zone—not too hot and not too cold. Weak industrial production data was also shrugged off, even though the US Economic Surprise Index took a hit.
As a result, traders are confident that the Fed will hike rates by 0.25% in July, as expected, but will not need to tighten further after that. Sure, whatever.
The most dramatic action of the day was between value and growth stocks. Value had the upper hand early on, but then growth staged a comeback, after Microsoft announced new pricing for its AI products. NVDA followed suit and soared higher as well.
Bond yields were mixed with the 10-year Treasury yield slipping slightly. The dollar bounced back from an early dip and closed slightly higher, while gold was the star performer of the day with a 1.28% gain and a 6-week high.
Looking at the global picture, it’s no secret that liquidity is the main driver of all equity markets. Major stock indexes, like the S&P 500, tend to move in sync with liquidity, but that correlation has broken down for the first time in 10 years, as this chart shows.
Hmm, will this alligator jaw snap shut soon? Or is this time different?
- “Buy” Cycle Suggestions
The current Buy cycle began on 12/1/2022, and I gave you some ETF tips based on my StatSheet back then. But if you joined me later, you might want to check out the latest StatSheet, which I update and post every Thursday at 6:30 pm PST.
You should also think about how much risk you can handle when picking your ETFs. If you are more cautious, you might want to go for the ones in the middle of the M-Index rankings. And if you don’t want to go all in, you can start with a 33% exposure and see how it goes.
We are in a crazy time, with the economy going downhill and some earnings taking a hit. That will eventually drag down stock prices too. So, in my advisor’s practice, we are looking for some value, growth and dividend ETFs that can weather the storm. And of course, gold is always a good friend.
Whatever you invest in, don’t forget to use a trailing sell stop of 8-12% to protect yourself from big losses.
- Trend Tracking Indexes (TTIs)
Bank stocks delivered strong earnings results and boosted the market mood. Our Trend Tracking Indexes (TTIs) widened their distance from the trend line, as traders and algorithms seem to ignore any obstacles to the current trend.
This is how we closed 07/18/2023:
Domestic TTI: +6.61% above its M/A (prior close +5.95%)—Buy signal effective 12/1/2022.
International TTI: +8.78% above its M/A (prior close +8.09%)—Buy signal effective 12/1/2022.
All linked charts above are courtesy of Bloomberg via ZeroHedge.
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