- Moving the markets
The stock market had a bad day on Thursday, thanks to Fed chair Powell’s party-pooper speech. He said that inflation was still too high for comfort, and that the economy might have to slow down a bit to cool it off. He basically said:
We’re doing a great job at creating jobs and keeping prices stable. But, by the way, inflation is still too high.
That was enough to scare away the investors who were hoping for some dovish signals from the Fed. The market reversed course and wiped out the gains from the midday rally. The major indexes ended up in the red, with some of them hitting new lows for the year.
Meanwhile, the bond market was also feeling the heat. The 10-year Treasury yield climbed to almost 5%, a level not seen since 2007. That raised doubts about how the Fed would handle the rising interest rates and their impact on the economy.
The economic data was mixed, as usual. On one hand, initial jobless claims were below 200,000, showing that the labor market was still strong. On the other hand, continuing claims rose to their highest level since July, suggesting that some workers were having trouble finding new jobs.
The earnings season also had its ups and downs. Tesla shares tanked more than 9% after the electric car maker missed Wall Street’s expectations on both earnings and revenue. Netflix shares soared more than 14% after the streaming service beat analysts’ estimates on both earnings and subscribers.
The oil market was on fire, literally and figuratively. Crude oil prices surged to new highs, as supply disruptions and geopolitical tensions kept the market on edge.
Gold and silver also gained, as investors sought safe havens from the market turmoil. The US dollar slipped, as confidence in the US economy waned. And the US Leading Indicator dropped for the 18th consecutive month. Ouch indeed!
So, what does all this mean for the market outlook? Well, as this chart shows, it’s not pretty. The market is caught between a rock and a hard place: inflation and interest rates on one side, and economic growth and earnings on the other.
The Fed and global events are adding to the uncertainty and volatility. The market is clearly in a bearish mood, but can it turn around? Or will it keep sliding down? That’s the million-dollar question.
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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 market was optimistic that Fed chair Powell would signal a softer stance on interest rates in his speech at the Economic Club. This led to a brief surge in the middle of the day, but it quickly faded when Powell said that inflation was still too high. His words burst the market’s bubble and sent the major indexes plunging into the red.
Our TTI’s also took a hit and are now firmly in the bearish zone.
This is how we closed 10/19/2023:
Domestic TTI: -4.47% below its M/A (prior close –3.24%)—Sell signal effective 9/22/2023.
International TTI: -2.11% below its M/A (prior close -1.37%)—Sell signal effective 10/3/2023.
All linked charts above are courtesy of Bloomberg via ZeroHedge.
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