- Moving the markets
The U.S. consumer is in the spotlight this week, as three retail giants – Home Depot, Target, and Walmart – are set to report their earnings. We’ll also get a glimpse of how shoppers spent their money in July, with the retail sales data coming out on Tuesday morning.
These reports come on the heels of last week’s inflation data, which showed that prices are still rising faster than the Fed’s 2% target but not as fast as they did in the previous months. Is this a sign that inflation is cooling off, or just a temporary blip?
Two weeks ago, I asked ‘What’s next?’ for the markets, and the answer was ‘not much’. The markets have been choppy and directionless, waiting for more clarity on the economy and the Fed’s next move. That hasn’t changed much this month.
But in the dog days of August, when investors have more time to daydream, some are starting to wonder if there are other scenarios besides a Goldilocks soft landing. Maybe the news flow isn’t as rosy as it was earlier this summer. Maybe there are some risks lurking in the shadows?
Some traders are trying to brush off the August slump by saying that it’s healthy and normal, and that it doesn’t mean the end of the bull market. They seem to forget that the rally was based on a lot of speculation and hope that the Fed would cut interest rates soon. But today’s data showed that rate hike expectations are rising, not falling, as this chart shows.
The chart shows the implied probability of a rate hike by December 2023 based on fed funds futures contracts.
The major indexes managed to close slightly higher today, but the small caps were left behind. NVDA had a rough start, but recovered and crossed its 50-day moving average, just in time for the AI boom downturn. Look at this chart.
Bond yields had a wild ride today, ending higher after a dip in the middle of the day. The 2-year yield is on track to hit 5% soon. The dollar gained some strength, which weighed on gold prices. Oil prices were aimless and ended lower.
The big event of the week will be Home Depot’s earnings report on Thursday. The company has more impact on the S&P than Walmart and Target combined. But it has missed expectations for two quarters in a row.
Will it break the streak, or break the market?
- “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)
The major indexes barely closed higher today, but the gains were not widespread.
As a result, both of our TTIs dropped slightly but stayed above their respective trendlines.
This is how we closed 08/14/2023:
Domestic TTI: +4.05% above its M/A (prior close +4.07%)—Buy signal effective 12/1/2022.
International TTI: +5.27% above its M/A (prior close +5.54%)—Buy signal effective 12/1/2022.
All linked charts above are courtesy of Bloomberg via ZeroHedge.
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