- Moving the markets
The stock market ended higher today, with the 10-year Treasury yield plunging to 3.92%, its lowest level since August. Investors were cheered by a surprise increase in retail sales, which suggested that the economy would avoid a hard landing in 2024.
The bond market seemed to give an assist, as traders priced in more rate cuts for 2034. The Fed signaled that it may lower rates three times next year, after saying just two weeks ago that it was “premature” to talk about easing. What changed in such a short time?
Meanwhile, bank stocks rallied, even as the Fed’s emergency lending facility hit a record high of $124 billion. The Regional Banking ETF soared to levels not seen since the March banking crisis. How does that make sense?
To me, the Fed has given up on fighting inflation, which is likely to get worse as the government keeps borrowing and spending like there’s no tomorrow. The latest data showed that the November budget deficit was a staggering $380 billion, the largest ever for that month, despite a 9% rise in tax revenues.
This fiscal recklessness is happening at a time when interest rates are rising sharply. This is bad news for a government that relies on debt to fund its operations and is probably one of the reasons why the Fed has capitulated to inflation. The government can’t afford high interest rates.
Financial analyst Jim Grant believes that we are in the early stages of a long-term bear market in bonds (higher yields) that will last for decades, regardless of what the Fed does. This means that the only way to escape this vicious cycle is to slash spending.
But will that ever happen?
2. Current “Buy” Cycles (effective 11/21/2023)
Our Trend Tracking Indexes (TTIs) have both crossed their trend lines with enough strength to trigger new “Buy” signals. That means, Tuesday, 11/21/2023, was the official date for these signals.
If you want to follow our strategy, you should first decide how much you want to invest based on your risk tolerance (percentage of allocation). Then, you should check my Thursday StatSheet and Saturday’s “ETFs on the Cutline” report for suitable ETFs to buy.
3. Trend Tracking Indexes (TTIs)
The market reacted positively to Powell’s change of stance on interest rates, which fell below 4% for the 10-year bond. The main stock indexes also rose steadily, reflecting the optimism of investors.
Our TTIs increased accordingly.
This is how we closed 12/14/2023:
Domestic TTI: +9.00% above its M/A (prior close +7.55%)—Buy signal effective 11/21/2023.
International TTI: +6.79% above its M/A (prior close +5.91%)—Buy signal effective 11/21/2023.
All linked charts above are courtesy of Bloomberg via ZeroHedge.
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