Manufacturing Woes Trigger Market Plunge; Stagflation Fears Rise

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the market

Concerns about a slowing economy pulled the markets down from their lofty levels right after the opening bell. The tech sector led the decline, with Nvidia’s 10% drop providing no reason for traders to be bullish. Unsurprisingly, other semiconductor stocks followed suit and declined as well.

The S&P 500’s 2.1% plunge marked its worst performance since the August 5th meltdown and its worst start to a month since May 2024, as noted by ZH. Small Caps mirrored this trend, plunging 3%.

This early downturn was driven by the latest manufacturing production readings, which confirmed fears of an imploding manufacturing sector and an overall economic slowdown—a scenario I have repeatedly commented on. The much-discussed “S” word, stagflation, seems to be the eventual outcome.

Currently, bad news is indeed bad news, as markets have become data-dependent and are anxiously awaiting the latest jobs report on Friday. This report, the last one before the next Fed meeting, may influence their policy, but only in terms of the rate cut’s magnitude, not its likelihood.

Commodities also took a hit, with crude oil tumbling over 4%, finding support at the $70 level. Even gold wasn’t immune from the sell-off, though its drop was modest as the precious metal successfully defended its $2,500 level.

Bond yields slid, but this offered no assistance to equities, as everything that wasn’t nailed down got hammered.

This makes me wonder: will dip buyers have the courage to step in tomorrow and reestablish bullish sentiment?

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ETFs On The Cutline – Updated Through 08/30/2024

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 (277 vs. 275 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 August 30, 2024

Ulli Market Commentary Contact

ETF Tracker StatSheet          

You can view the latest version here.

GOLD SHINES AMID MARKET VOLATILITY, REACHES NEW ALL-TIME HIGH

[Chart courtesy of MarketWatch.com]

  1. Moving the market

The volatility that marked the beginning of August subsided, allowing bullish sentiment to prevail as we closed out the month. Despite an initial drop of over 7%, the S&P 500 rebounded, achieving its fourth consecutive winning month with a 2.3% gain. In contrast, the Nasdaq barely managed to close in the green.

Traders found relief in the Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) index, which rose by only 0.2% month-over-month and 2.5% year-over-year. These figures met expectations and reinforced the belief that the Fed will cut rates at their September 18 meeting.

However, the Personal Savings Rate as a percentage of disposable personal income fell below 3% for the first time since the COVID-19 pandemic. This was the lowest level since June 2022 and the second lowest since 2008, reflecting challenging economic conditions.

The Economic Surprise Index continued its volatile trend from July but ended the month on a positive note, as the early August market downturn became a distant memory. Most stock indexes closed August positively.

Following the early August decline, bond yields rose and decoupled from equities. Gold emerged as the standout performer, reaching a new all-time high after an initial drop.

Crude oil traded within a broad range but ultimately closed lower, the dollar dropped before attempting a rebound, and Bitcoin recovered from early losses only to fade back by month’s end.

With Nvidia’s earnings now public and the stock having retreated from its highs, can it overcome historical comparisons with Cisco Systems and continue to advance despite significant recession risks?

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 08/29/2024

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ETF Data updated through Thursday, August 29, 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 +7.68% and is in “Buy” mode as posted.

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Market Sentiment Shifts: Bullish Optimism Fades Amid Mixed Economic Signals

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the market

Despite Nvidia exceeding earnings expectations and raising its outlook, the stock pulled back in after-hours trading yesterday and is down nearly 5% this morning.

This decline might have dragged the markets lower, but it didn’t, thanks to falling jobless claims and an unexpected upward revision of the second quarter GDP growth from 2.8% to 3%.

This pleasant “coincidence” fueled optimism among traders, suggesting that the risk of an imminent recession is low and that the bull market has more room to run. However, this bullish sentiment was short-lived, and only the Dow managed to close with a slight gain.

In contrast, Dollar General’s stock price plummeted by 26%, marking its steepest intraday decline ever. Additionally, Pending Home Sales hit record lows, dropping by 5.5% month-over-month in July. These headlines are part of a broader trend indicating that economic conditions may not be as favorable as they seem.

Bitcoin gave up some early gains but still closed in the green, while the Nasdaq dipped into the red, with both appearing to move in sync today.

Crude oil rebounded and continues its see-saw pattern, while bond yields rose, with the 10-year breaking out of its August triangle pattern. Gold reached another all-time high, diverging from the 10-year bond yield.

Does this divergence suggest that much lower interest rates are on the horizon?

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Nvidia Earnings Anticipation Sparks Market Selloff: What’s Next?

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the market

Anxiety surrounding Nvidia’s earnings announcement, set to be released after today’s close, initially kept equities in a tight trading range but ultimately led to a selloff.

Traders are rightfully questioning how much more upside potential can be realistically expected after Nvidia’s impressive 159% surge in 2024.

Despite this, optimism remains as analysts focus on the company’s delivery schedule for the Blackwell chips and the increasing demand for AI updates. There is hope that Nvidia might surprise traders positively.

Dubbed the “most important earnings announcement ever,” the anticipation had bears eager to control any bullish sentiment, with the Nasdaq leading the decline.

Unsurprisingly, the MAG7 basket followed suit, marking its fifth consecutive day of losses, with the most shorted stocks being heavily sold off.

Bond yields rose as the dollar continued its recovery, while Bitcoin moved in the opposite direction but found support at the $58k level. Rising yields left gold without any positive momentum, causing it to retreat from its record high. Crude oil also sold off but managed to hold its $74 price point.

Once again, stocks appear to be in a state of divergence from bond yields, as illustrated by this chart.

Are we on the verge of witnessing a repeat of the “adjustment” that occurred in late July?

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