- Moving the markets
U.S. stocks wandered around like lost sheep today, apparently unfazed by Moody’s Investors Service cutting its U.S. credit rating outlook to negative from stable on Friday. The downgrade reflects the U.S.′ “very large” fiscal deficits and the political deadlock in Washington that prevents any meaningful action. The ratings agency still gave America an AAA rating, the highest level, but for how long?
This follows Fitch’s downgrade of the U.S. long-term foreign currency issuer default rating to AA+ from AAA three months ago, for similar reasons.
Treasury yields rose briefly and then fell back after the outlook change. The 10-year yield dropped 1.6 basis points to 4.627%. It seems that investors are either ignoring the Moody’s downgrade or are more worried about other things happening this week.
The main event is the consumer price index data for October, a key measure of inflation that the Federal Reserve watches closely. The data, due on Tuesday, will give us a clue about the state of the U.S. economy before the Fed’s December meeting. Right now, the odds of a rate hike at that meeting are slim to none.
The dollar weakened, gold rebounded, and crude oil climbed higher for the second day in a row. Bond yields have been rising lately, defying historical patterns. But that may change as U.S. foreign credit risk has increased with the downgrade.
Will foreign investors ask for higher yields to lend us money for our growing debt?
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 mostly flat today, with the major indexes ending near their opening levels. Our TTIs diverged slightly, as the domestic one edged lower and the international one rose slightly.
We remain bearish on the market outlook.
This is how we closed 11/13/2023:
Domestic TTI: -2.49% below its M/A (prior close -2.37%)—Sell signal effective 9/22/2023.
International TTI: -0.13% below its M/A (prior close -0.54%)—Sell signal effective 10/3/2023.
All linked charts above are courtesy of Bloomberg via ZeroHedge.
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