ETF Tracker StatSheet
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STOCKS FALL ON FRIDAY AS INFLATION FEARS SPOOK INVESTORS: IS THE FED STUCK BETWEEN A ROCK AND A HARD PLACE?
- Moving the markets
The markets had a roller coaster ride on Friday, as oil prices soared, and inflation fears spooked investors. Wall Street closed a turbulent week with losses across the board, but the major indexes eked out a gain.
Big banks like JPMorgan Chase and Wells Fargo reported strong earnings for the third quarter, thanks to a generous bailout from Uncle Sam earlier this year (1st Republic Bank). But that didn’t impress the market much, and stocks only got a brief lift from lower Treasury yields.
The 10-year yield dropped to 4.598%, while the 2-year yield dipped to 5.02%. The Fed tried to calm the nerves of traders, as Philly Fed President Patrick Harker said he sees no need to hike rates anytime soon.
But the market wasn’t buying it, as consumer sentiment plunged in October and inflation expectations surged to the highest level since May. The one-year inflation outlook jumped from 3.2% to 3.8%, dragging down the US Macro data index.
The S&P 500 hit rock bottom midday, as oil prices spiked over 6% amid fears of a wider conflict in the Middle East.
The Israel-Hamas war rattled the oil market, sending WTI crude up more than 4% for the week, its best performance since Sept. 1. Gold also shined, jumping over 3% on Friday and over 5% for the week, its biggest weekly gain since March.
Investors flocked to “war hedges” like gold and oil, as bond yields slipped but remained above 5%.
The Nasdaq was flat for the week, while the S&P and Dow eked out small gains despite some nasty swings. Small Caps got hammered, losing over 3% for the week, their worst performance since March.
Airlines also took a beating, as higher oil prices hurt their bottom line. The Regional Bank Index (KRE) fell, even though bank earnings were solid. The most shorted stocks continued their downward spiral, falling for the ninth time in eleven weeks. The dollar had a wild ride, ending slightly higher for the week.
It was a crazy week on Wall Street, but nothing seems to shake the Fed’s resolve to keep printing money like there’s no tomorrow. But how long can they keep this up?
They have two choices: either raise rates and kill inflation along with the economy and the markets or keep printing money and kill the dollar in your pocket.
Which poison will they pick?
2. “Buy” Cycle (12/1/22 to 9/21/2023)
The current Domestic Buy cycle began on December 1, 2022, and concluded on September 21, 2023, at which time we liquidated our holdings in “broadly diversified domestic ETFs and mutual funds”.
Our International TTI has now dipped firmly below its long-term trend line, thereby signaling the end of its current Buy cycle effective 10/3/23.
We have kept some selected sector funds. To make informed investment decisions based on your risk tolerance, you can refer to my Thursday StatSheet and Saturday’s “ETFs on the Cutline” report.
Considering the current turbulent times, it is prudent for conservative investors to remain in money market funds—not bond funds—on the sidelines.
3. Trend Tracking Indexes (TTIs)
The markets experienced another volatile day, as the S&P and Nasdaq reversed their early gains and ended in negative territory.
Our Trend Tracking Indexes (TTIs) also declined and moved further below their trend lines, indicating a bearish market environment.
This is how we closed 10/13/2023:
Domestic TTI: -3.40% below its M/A (prior close –3.30%)—Sell signal effective 9/22/2023.
International TTI: -1.31% below its M/A (prior close -0.67%)—Sell signal effective 10/3/2023.
All linked charts above are courtesy of Bloomberg via ZeroHedge.
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