Inflation Data In Focus As Markets Attempt To Recover From Steep Losses

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the market

The markets began the session on a positive note, attempting to recover from last week’s steep losses. Although early upward momentum was briefly lost, bullish sentiment soon resumed, leading the major indexes to gain over 1% by the end of the day.

In the S&P sectors, technology and communications were the top performers, each advancing by over 1%. The Dow Jones Industrial Average was buoyed by gains in Boeing, American Express, and Caterpillar.

Last week’s sell-off resulted in significant losses for the major indexes, reminiscent of the downturn at the beginning of August. Despite the S&P 500’s 4.3% decline, our primary directional indicator, the Domestic Trend Tracking Index, remained above its long-term trend line, indicating continued bullish tendencies for now.

This market turmoil was largely driven by a slowing labor market and signs that the economy may not be as robust as previously thought, with layoffs and massive store closures dominating headlines for months.

This week, traders are focusing on the latest inflation data, with the consumer and producer price reports (CPI/PPI) due out on Wednesday and Thursday. These reports will be crucial and could influence the Federal Reserve’s decision on interest rates later this month. Currently, there is a 71% chance that the Fed will cut rates by 0.25%, and a 29% chance of a 0.50% cut.

Nvidia continued its rebound from the critical $100 level, while Google slipped another 3%, marking its fourth loss in the past five days. Apple’s new iPhone 16 was largely seen as a disappointment, causing the stock to drop for the fifth time in the last six sessions.

Bond yields dipped slightly, gold rebounded and is now trading close to its all-time high. Bitcoin’s ARKB ETF gained significant momentum, surging by 6.85%, a welcome recovery after recent weakness.

Was today merely a dead cat bounce, or will this recovery attempt continue?

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ETFs On The Cutline – Updated Through 09/06/2024

Ulli ETFs on the Cutline Contact

Do you want to know which ETFs are hot and which ones are not? Then you need my High-Volume ETF Cutline report. It tells you how close or far each of the 311 ETFs I follow is from its long-term trend line (39-week SMA). These are the ETFs that trade more than $5 million a day, so they are not some obscure funds that nobody cares about.

The report is split into two parts: The winners that are above their trend line (%M/A), and the losers that are below it. The yellow line is the line of shame that separates them. You can see how many ETFs are in each group and how they have changed since the last report (275 vs. 245 current).

Take a peek:

The HV ETF Master Cutline Report

If you are confused by some of the terms we use, don’t panic. I have a helpful Glossary of Terms for you.

If you want to learn more about the Cutline method and how it can make you rich (or at least less poor), read my original post here.

ETF Tracker Newsletter For September 6, 2024

Ulli ETF Tracker Contact

ETF Tracker StatSheet          

You can view the latest version here.

MARKET TURMOIL: NO SAFE HAVEN AS EQUITIES AND COMMODITIES PLUNGE

[Chart courtesy of MarketWatch.com]

  1. Moving the market

A weaker-than-expected jobs report immediately dragged the major indexes into negative territory after the opening bell. The Dow initially held up better than its counterparts but eventually succumbed to bearish sentiment.

The Nasdaq led the decline, with mega-cap stocks being heavily sold off as traders began to question their growth potential. This shift in sentiment marked a change from the previous trend where bad news was often interpreted as good news.

The latest jobs data presented a mixed picture. August payrolls came in at 142,000, slightly below the anticipated 165,000. Additionally, the July figure was revised downward to 89,000, making today’s number appear more significant—until it too is potentially revised.

On the positive side, the unemployment rate dipped from 4.3% to 4.2%, aligning with expectations. Despite the mixed data, it wasn’t poor enough to justify a 0.5% rate cut at the upcoming Federal Reserve meeting, as some had speculated. A 0.25% cut is now fully priced in.

The markets reacted negatively, with traders entering sell mode, exacerbating the outcome of an already dismal, holiday-shortened week. This week now appears to be the worst since April, with the S&P 500 dropping 4.25%.

There was no “safe haven” as every asset class ended the week on a downtick. The S&P 500, crude oil, Bitcoin, and even gold was unable to escape the downturn. Bond yields fluctuated, with the 10-year yield pulling back slightly, although the market reaction suggested just the opposite.

Even tech favorite Nvidia continued its decline, now down more than 30% from its June all-time high, with the MAG7 basket following closely behind.

While history may not always repeat itself, traders are hopeful for a year-end rally, as suggested by a Goldman Sachs chart showing potential post-election gains.

But can we really count on this rally, or is it wiser to have an exit strategy in place?

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 09/05/2024

Ulli ETF StatSheet Contact

ETF Data updated through Thursday, September 5, 2024

How to use this StatSheet:

  1. Out of the 1,800+ ETFs out there, I only pick the ones that trade over $5 million per day (HV ETFs), so you don’t get stuck with a lemon that nobody wants to buy or sell.
  1. Trend Tracking Indexes (TTIs)

These are the main indicators that tell you when to buy or sell Domestic and International ETFs (section 1 and 2). They do that by comparing their position to their long-term M/A (Moving Average). If they cross above, and stay there, it’s a green light to buy. If they fall below, and keep going, it’s a red light to sell. And to make sure you don’t lose your shirt if things go south, I also use a 12% trailing stop loss on all positions in these categories.

  1. All other investment areas don’t have a TTI and should be traded based on the position of each ETF relative to its own trend line (%M/A). That’s why I call them “Selective Buy.” In other words, if an ETF goes above its own trend line, you can buy it. But don’t forget to use a trailing sell stop of 12%, or less if you’re feeling nervous.

If some of these words sound like Greek to you, please check out the Glossary of Terms and new subscriber information in section 9.

  1. DOMESTIC EQUITY ETFs: BUY— since 11/21/2023

Click on chart to enlarge

This is our main compass, the Domestic Trend Tracking Index (TTI-green line in the above chart). It has broken above its long-term trend line (red) by +5.85% and is in “Buy” mode as posted.

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Gold Prices Surge As Recession Fears And Lower Bond Yields Persist

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the market

After two consecutive losing sessions, the major indexes made a notable comeback, led by the Nasdaq, as traders revived the tech sector from its slump. Early on, bargain hunters took advantage of the dip, but bearish sentiment soon resurfaced, causing the Dow and S&P 500 to close in the red once again.

Today’s jobless claims fell slightly, reaching an eight-week low. This has created a tug-of-war scenario between employers’ reluctance to lay off workers and their caution about new hiring. Despite reports of a chronic labor shortage, some companies expect the economy to improve once the Federal Reserve implements its rate reduction policy later this month.

However, I believe the economy has already turned downward, and the Fed is lagging on rate cuts. Weak economic data, such as declining manufacturing output, numerous store closures, and mass layoffs by major corporations, have been evident for months.

The ADP employment report revealed a disappointing addition of 99,000 jobs, falling short of the expected 145,000 and marking the weakest growth since January 2021. Additionally, July’s job numbers were revised down from 122,000 to 111,000. This suggests that tomorrow’s jobs report might also fall short of expectations, unless it is artificially inflated to temporarily appease the markets before being revised down again.

Bond yields dipped slightly, with the 10-year yield hitting its lowest point of 2024. As recession fears intensify, crude oil prices have dropped to their lowest levels of the year, potentially breaking 2023’s lows as well.

Gold prices surged and, while still within a broad range, appear poised to reach new all-time highs soon. This movement is expected to be driven by lower interest rates, as announced by the Fed, and its upcoming debt monetization, which could propel inflation to new heights.

This leaves me with one question: Got gold?

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Markets Plunge Again As Early Gains Fade; September Volatility Looms

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the market

The major indexes began the session fluctuating around their respective unchanged lines with a slightly positive bias. Tech giant Nvidia managed to temporarily recover some of yesterday’s sharp losses, which marked the worst performance for equities since August 5th.

However, early bullish enthusiasm faded, leading the markets to another red close. Dropping bond yields failed to provide support, and a sustainable recovery was further hindered by job openings plunging to their lowest level since early 2021. Additionally, the Fed’s latest Beige Book report indicated only flat or declining economic activity.

September is historically a volatile month, often bringing surprises, mainly to the downside. While some traders see this as a dip-buying opportunity, the weakening economy and the Fed’s intention to lower rates add uncertainty to the potential resumption of the bull market.

Historically, changes in Fed policy have more often led to bear markets. I will share that chart again once the Fed cuts interest rates on September 18th.

Bond yields slid, with the 10-year dropping to 3.75%, its lowest level this year. Crude oil tumbled, losing its $70 support, while gold inched up slightly along with Bitcoin.

If economic indicators continue to worsen, will equities be able to maintain current levels, let alone reach new highs?

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