ETF Tracker StatSheet
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TRADERS IGNORE BOND YIELDS AND JOBS REPORT, LIFT STOCKS FROM LOWS
- Moving the markets
The markets had a crazy day, as traders shrugged off soaring bond yields and the stellar jobs report and pushed the major indexes from the red to the green. Maybe they were just buying the dip, or maybe they were feeling optimistic, but they ignored the bad news that should have spooked them.
The U.S. economy added a jaw-dropping 336,000 jobs in September, the most since January. Economists expected only 170,000. But wages grew less than expected last month, so maybe it wasn’t all roses.
What sparked the turnaround?
Well, some traders might have smelled a rat in the jobs number. Remember how most of this year’s economic data was revised down a month later, when no one was paying attention? Maybe they thought that September was too good to be true, especially when many companies were closed due to labor strikes (i.e., people not working).
How did the US add 336K jobs, double the consensus, in such a month? It sounds fishy, doesn’t it?
The 10-year Treasury yield jumped more than 12 basis points to trade near a 16-year high, but it retreated at the end and closed at 4.79%. Friday’s jobs report made investors worry that the Fed will have to keep rates high for longer to fight inflation.
But others doubted the report and cut their losses in bonds and stocks, as the S&P 500 barely closed in the green for the week, thanks to a huge buy order and a ‘massive’ short squeeze. The 336K number is huge and means the Fed could easily hike another 25bp and stay high for a long time.
Rates will keep rising and that will hurt stocks, especially with tighter financial conditions. Those traders who bet that the Fed “has to” lower rates, and bought bonds too soon, saw the 20-year bond fund TLT lose another 1.2% today. TLT has dropped about 15% YTD, after a whopping 33% plunge in 2022. So much for bonds being safe.
Bond yields spiked, the dollar rose for the week, gold rebounded but ended lower for the week, as crude oil fell but stayed above $82. As ZeroHedge pointed out, this year, S&P 500 companies are facing the biggest rise in borrowing costs since 2006.
Lending money to the US government at 5%-plus is tempting for investors who don’t like risk.
After all, why gamble on corporate performance when you can get a risk-free return in T-Bills?
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 a volatile day, with traders ignoring rising bond yields and the strong jobs report and boosting the major indexes from their lows. It is unclear if this was a temporary recovery from the recent severe sell-off, or the start of a new upward trend.
Our TTIs showed some improvement but remained in the bearish zone.
This is how we closed 10/6/2023:
Domestic TTI: -3.71% below its M/A (prior close –4.59%)—Sell signal effective 9/22/2023.
International TTI: -1.91% below its M/A (prior close -2.54%)—Sell signal effective 10/3/2023.
All linked charts above are courtesy of Bloomberg via ZeroHedge.
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