ETF Tracker StatSheet
You can view the latest version here.
ECONOMIC DATA DISAPPOINTS, BUT MARKETS CLING TO RATE CUT DREAMS
- Moving the markets
Today’s stock market witnessed a significant surge, buoyed by the April jobs report which fell short of expectations, sparking speculation that the Federal Reserve might consider reducing interest rates soon.
The report indicated an addition of 175,000 jobs in April, a figure notably lower than the 240,000 forecasted by economists. This was accompanied by a slight uptick in the unemployment rate to 3.9% from the previous month’s 3.8%, and subdued wage growth — factors that allegedly suggest a tempering of inflationary pressures.
The market’s reaction was swift, as these figures alleviated concerns over an overheating economy, thereby renewing optimism for potential rate cuts. This sentiment was reflected in the falling interest rates, a rally in bond markets, and a general uplift in equity markets.
The prevailing view is that the Federal Reserve might initiate interest rate cuts later this year, prompted by a single set of data points that are subject to future revisions. Hmm…
Following the labor report, the yield on the 10-year Treasury note dipped below 4.5%. Federal Reserve Chair Jerome Powell, in the recent Fed meeting, indicated the central bank’s readiness to respond should the unemployment rate rise.
Contributing to the market’s positive performance were robust quarterly reports from key Dow components. Apple’s shares climbed 6% after the tech giant announced a substantial share buyback program and exceeded earnings expectations. Similarly, biotech firm Amgen’s shares soared by 12% on the back of strong earnings results.
Despite the upbeat market, the Macro Surprise index plummeted to its lowest level since February 2023, signaling a disconnect between economic data and market performance. The economy is grappling with stagnating growth and rising inflation — a scenario reminiscent of stagflation, which the Federal Reserve has yet to acknowledge officially.
The Nasdaq stood out, with the MAG7 stocks experiencing volatility yet trending towards record highs. Meanwhile, the most heavily shorted stocks underwent their most significant squeeze in two months, and the utility sector emerged as this week’s standout performer.
In the bond market, yields fell sharply, with the 2-year yield notably retreating from its 5% mark. The U.S. dollar weakened, gold prices declined for a second consecutive week, and Bitcoin rebounded to surpass the $62,000 threshold. Conversely, crude oil prices experienced a downturn throughout the week, approaching their lowest in nearly two months.
The anticipation of a weaker economic outlook has led traders to entertain the possibility of two rate cuts in 2024, followed by three additional cuts in 2025. This raises the question:
Will the market’s hopeful anticipation of a dovish turn in monetary policy be met, or will it face another round of disappointment?
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)
Despite weak economic data, traders aggressively pushed major stock indexes higher. The bears, who had bet against the market, were caught off guard and had to close out their short positions. This sudden shift served as a springboard for further price gains.
Our TTIs also moved in line with this upward trend, widening the gap from their respective trend lines.
This is how we closed 5/03/2024:
Domestic TTI: +6.73% above its M/A (prior close +6.24%)—Buy signal effective 11/21/2023.
International TTI: +7.76% above its M/A (prior close +7.34%)—Buy signal effective 11/21/2023.
All linked charts above are courtesy of Bloomberg via ZeroHedge.
———————————————————-
WOULD YOU LIKE TO HAVE YOUR INVESTMENTS PROFESSIONALLY MANAGED?
Do you have the time to follow our investment plans yourself? If you are a busy professional who would like to have his portfolio managed using our methodology, please contact me directly to get more details.
—————————————————————-
Contact Ulli