- Moving the markets
The market had a rough start today as Fed chair Powell poured cold water on the hopes of rate cut seekers. He repeated his hawkish stance in a “60 Minutes” interview last night, saying he needed more proof that inflation was under control before he would consider lowering rates.
This sent bond yields soaring and stock prices tumbling. But the major indexes showed some resilience and bounced back from the lows, thanks to a short squeeze and some bargain hunting. Still, it was not enough to end the day in the green.
The market also digested some solid economic data that showed the service sector was doing well in January. The ISM nonmanufacturing index came in at 53.4, beating the Dow Jones estimate of 52. This was good news for the economy, but bad news for those who wanted a rate cut.
Meanwhile, investors were hoarding cash in money market funds, signaling a mixed sentiment about stocks. On the one hand, high cash levels could mean that investors were skeptical about the record highs on the SPX. On the other hand, high cash levels could also mean that investors had plenty of ammo to buy the dips.
Regional banks (KRE) took a hit again but trimmed their losses. The dollar got a boost from higher yields, but gold suffered. Since mid-January, stocks (green) and bonds (red) have diverged, as this chart shows. But we know they will eventually converge again.
The question is: who will blink first? Will bond yields come down to earth or will stocks crash and burn?
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 was shaken by a sudden rise in bond yields, which signaled that Fed chair Powell was not planning to lower interest rates anytime soon. He reaffirmed this view in an interview on “60-Minutes” last night. The main stock indexes dropped sharply at first, but then recovered some of their losses.
Our TTIs also fell from their high points, but they remained in positive territory, indicating that the market still has confidence in equities.
This is how we closed 2/05/2024:
Domestic TTI: +6.50% above its M/A (prior close +7.42%)—Buy signal effective 11/21/2023.
International TTI: +6.43% above its M/A (prior close +6.97%)—Buy signal effective 11/21/2023.
All linked charts above are courtesy of Bloomberg via ZeroHedge.
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