Gold Hits Record High As Rate-Cut Expectations Rise

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the market

After a sluggish start, the major indexes found some bullish sentiment despite anxiety about the upcoming earnings report from top AI chip producer Nvidia.

Nvidia’s numbers are due out on Wednesday, and as the bellwether in the tech and AI arena, its financial health will be closely examined to determine if the current rotation away from technology was justified or if it will be reversed.

Until then, the markets may continue in an almost listless mode, despite the enthusiasm gained after Powell’s indication of lower interest rates last Friday. Traders assume that a 0.25% easing is a given, with hopes growing that a 0.50% reduction could happen as well, especially if more negative economic news surfaces between now and September 18th.

In today’s economic news, we learned that consumer sentiments improved moderately, but plans for major purchases were non-existent, as Regional Fed surveys also painted a weak picture. On the other hand, US home prices surged to a new record high in June, while median prices remained unchanged, which is not good for buyers.

Rate-cut expectations rose, giving gold a boost, with the precious metal scoring a new record high despite bond yields edging a tad higher.

The MAG 7 stocks trended sideways, but Nvidia outperformed the others. The dollar stayed unchanged, Bitcoin gave back some of its weekend gains, and oil prices ran into overhead resistance and pulled back.

The latest Nvidia/Cisco system comparison shows Nvidia in the lead.

But for how long?

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Dow Hits Record High Amid Mixed Market Sentiment

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the market

Equities drifted throughout the session following a strong week where the S&P 500 gained 1.5%. While the S&P 500 and Nasdaq ended in the red, the Dow managed to close at a record high.

Fed Chair Powell’s dovish stance on interest rates fueled traders’ enthusiasm, raising hopes that the long-awaited rate cut might finally materialize at the next meeting on September 18. However, the extent of such a move remains under discussion.

The sharp sell-off in early August, triggered by troubling employment data and the unwinding of the Japanese carry trade, not only dragged the major indexes from their highs but also caused the S&P 500 to suffer a 3% one-day loss, its largest since 2022.

This event has now been sidelined, as expectations of lower rates and supposedly improving economic data—pending revisions—have reignited bullish sentiment in equities. But how long will this optimism last?

Following Friday’s enthusiastic response to Powell’s announcement, rate-cut expectations eased today, with the MAG 7 stocks continuing their zig-zag pattern over the past three trading days.

The dollar recovered some of Friday’s losses, which would typically weaken gold, but the precious metal pushed towards its all-time highs.

Bond yields edged up slightly, while crude oil surged nearly 3%, reclaiming the $72 level. Bitcoin crossed the $65k mark over the weekend but failed to maintain those gains during today’s session.

With the Fed Chair’s comments behind us, all eyes now turn to Nvidia’s upcoming earnings report.

Will it have a similar market impact as Powell’s announcement?

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ETFs On The Cutline – Updated Through 08/23/2024

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 (270 vs. 277 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 23, 2024

Ulli ETF Tracker Contact

ETF Tracker StatSheet          

You can view the latest version here.

WALL STREET CELEBRATES POWELL’S AMBIGUOUS RATE CUT SIGNAL

[Chart courtesy of MarketWatch.com]

  1. Moving the market

The major indexes surged higher following Fed Chair Powell’s commentary, which hinted at upcoming interest rate cuts.

Although Powell was vague about the specifics, his statement that “the time has come for policy to adjust” resonated strongly, despite his caution that “the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”

In essence, Powell left his options open, but traders focused on the potential for lower rates, propelling the markets upward. Tech stocks, which stand to benefit from lower rates, led the charge with Nvidia and Tesla both jumping 4%, while Small Caps followed closely behind.

While Powell’s comments were anticipated, the excitement on Wall Street was palpable, as hopes for lower rates seemed to be realized. However, few consider that a rate cut is more about supporting a struggling economy than a significant improvement in inflation. This policy shift could fuel further inflation, a consequence that might later be seen as inevitable.

ZeroHedge took it a step further, suggesting that ending the Fed’s tightening cycle with stocks at all-time highs is unprecedented. They argued that unless the current expansion ends in a severe recession, the S&P 500 could enter a bubble, which might burst spectacularly, forcing the Fed to revert to zero or even negative interest rates and resume quantitative easing.

For now, however, Wall Street celebrated another winning session, with equities soaring and rate-cut expectations rising. A short squeeze added to the upward momentum, while the dollar fell to 2024 lows, and bond yields plunged. Bitcoin surged towards the $64k mark, with gold and crude oil also climbing.

Enthusiasm dominated the day, but can it sustain the markets?

Historically, five of Powell’s six Jackson Hole speeches have been followed by an average 7.5% drop in the S&P 500 over the next three months.

Will this time be different?

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 08/22/2024

Ulli ETF StatSheet Contact

ETF Data updated through Thursday, August 22, 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 +6.68% and is in “Buy” mode as posted.

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Equities Retreat, Dollar Rebounds: Market Awaits Powell’s Insights

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the market

As we approach the conclusion of the Jackson Hole symposium, the major indexes have been experiencing volatility ahead of Fed Chair Powell’s anticipated commentary. Historically, Powell’s speeches at Jackson Hole have often boosted equities, but when they haven’t, sharp declines have followed.

Currently, the S&P 500 is within 1.25% of its all-time intraday high set in July. If Powell’s speech aligns with traders’ expectations regarding interest rate policy, we might see the index reaching a new record high.

The odds of a decrease in borrowing costs stand at 100%, but the extent of the cut remains uncertain, leading to much speculation. Traders are already pricing in a rate cut, reflecting their confidence in this outcome.

On the economic front, home sales ended a four-month losing streak in July, rising by 1.3% month-over-month. However, despite this modest improvement, sales remain sluggish.

This negative sentiment is also evident in the ECO US Surprise Index, which has dropped to levels last seen in 2015. The rise in bond yields, coupled with falling rate-cut expectations, highlights the market’s confusion over whether we will experience a hard or soft landing.

Equities took a hit, with even the MAG7 basket retreating. However, the dollar rebounded due to higher yields, pulling gold back below the $2,500 level. Crude oil prices saw a slight recovery, while Bitcoin faded but found support at the $60k level.

ZH reminds us that the past few years have seen a “sell the news” event following the Jackson Hole symposium.

Will this time be different?

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