Inflation Who? Market Surges On Strong Retail Sales And Short Squeeze

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

The market soared today as investors shrugged off inflation fears and snapped up stocks that were heavily shorted. This triggered a powerful short squeeze that boosted our domestic TTI deeper into the green zone. This means we can breathe a sigh of relief and postpone any potential “Sell” for now.

The market optimism was fueled by better-than-expected retail sales in August, which rose 0.6% against a 0.1% increase forecasted. This shows that consumers are still spending despite supply chain disruptions. Excluding autos, which are hard to find these days, retail sales also rose 0.6%, beating the 0.4% estimate.

On the other hand, inflation remained hot as the producer price index (PPI) jumped 0.7% in August, more than the 0.4% expected. This was the highest increase in 14 months. But who cares about food and energy prices, right? If we exclude those pesky items, core PPI only rose 0.2%, matching the estimate.

Meanwhile, across the pond, the European Central Bank (ECB) raised its key interest rate by a quarter percentage point, as expected. But the ECB also hinted that it might be done with hiking rates for now, as inflation is easing in Europe. Lucky them!

Back in the US, the Federal Reserve is likely to keep its rates unchanged at its September meeting next week, according to the latest pricing data. The odds of a rate hike in November are still low, but not zero. If the economy continues to surprise on the upside, the Fed might have to reconsider its stance and tighten its policy sooner than later.

One of the bright spots in today’s rally was Arm shares, which soared more than 15% on their first day of trading. The chip design company had the biggest tech IPO of the year and raised hopes for a revival of the tech IPO market. Arm’s IPO was priced at $51 a share, which seems like a bargain now.

In summary, today’s market action was a mix of good news and bad news, depending on your perspective. The good news is that the economy is strong and resilient. The bad news is that inflation is high and persistent. The market chose to focus on the good news today and ignore the bad news.

But will this last? How long can the market defy gravity and ignore inflation? And more importantly, how long can we ignore food and energy prices?

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CPI Report Sends Markets On A Roller-Coaster Ride

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

The markets were like a yo-yo today, as traders freaked out over the latest inflation report. The CPI, or consumer price index, showed that prices of stuff we buy went up more than expected in August.

The core CPI, which excludes food and energy (because who needs those, right?), also went up more than expected. The Fed, which is supposed to keep inflation under control, may or may not raise interest rates or stop buying bonds. Nobody knows for sure, and that’s why the markets are so jittery.

The Dow dropped a bit, while the Nasdaq and the S&P barely stayed in the green. Our Domestic TTI, or Trend Tracking Index (section 3), went below +1% and is almost ready to tell us to change our market strategy. But not yet, we still need more evidence from the market.

In other news, US mortgage applications hit rock bottom, the lowest since 1996. That’s bad news for the housing market and anyone who wants to buy or sell a home. The banking sector (KRE) had a wild ride, Netflix got slammed, and the most shorted stocks erased all of their “gains” from the August big squeeze. Semiconductors also had a rough day, as uncertainty ruled the market.

Bond yields fell, the dollar stayed flat, crude oil did nothing, and gold drifted along. What a boring day for commodities!

Will tomorrow’s PPI release, or producer price index, make things clearer or messier? The PPI measures the changes in the prices of stuff that producers sell.

A high PPI means that producers are passing on their higher costs to consumers, which could lead to more inflation. A low PPI means that producers are absorbing their higher costs or cutting their prices, which could lead to less inflation.

Stay tuned for tomorrow’s episode of “As the Market Turns”!

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Energy Sector Shines, Rest Of Market Dims As Inflation Looms

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Oil prices soared to their highest level in seven years, making everyone wonder if they should invest in electric cars or bicycles. The rising cost of energy spooked the stock market, which fell for the second day in a row.

The major indexes dipped below their 50-day moving averages, a sign of weakness in the market trend. Oracle was the biggest loser of the day, plunging 13% after disappointing investors with its revenue and guidance. The cloud computing giant faced stiff competition from other tech titans, such as Amazon, Alphabet and Microsoft, which also dropped.

Apple fans were eagerly awaiting the launch of the new iPhone model, but the stock was down ahead of the event. Maybe they were hoping for a cheaper phone or a free charger.

Investors were also nervous about the inflation data coming out later this week. The consumer price index (CPI) will be released tomorrow, followed by the producer price index (PPI) on Thursday. These reports measure the changes in the prices of goods and services and are closely watched by the Federal Reserve and the market.

High inflation could force the Fed to raise interest rates sooner than expected, which could hurt the economy and the stock market. Analysts had a lot to chew on this week, with a menu of economic reports to digest.

But if any of those reports come in much worse than expected, they might lose their appetite and throw up. That would not be good for the market either.

On the bright side, banks managed to crawl out of the hole they dug themselves into, with the banking index (KRE) rising slightly. However, they gave up some of their gains at the end of the day, showing a lack of confidence.

Bond yields were mixed, with the 2-year yield climbing above 5%. The US dollar bounced around but ended up slightly higher. Gold slipped, as investors preferred cash over shiny metal.

With all eyes on tomorrow’s CPI report, inflation expectations are surging. Does that mean a worse than expected CPI reading will ruin the party? Or will it be a non-event that will allow the market to resume its uptrend?

Tune in tomorrow to find out!

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Tesla And Tech Stocks Soar; Inflation Data Awaits; VIX Set To Spike

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

The stock market kicked off the week with a bang, as tech stocks bounced back from their recent slump. Tesla was the star of the show, soaring more than 9% after Morgan Stanley gave it a thumbs up and predicted a big rally ahead, thanks to its self-driving software. Maybe Elon Musk can finally afford to go to Mars now.

The bulls were also encouraged by a Wall Street Journal report that said the Fed was in no hurry to raise interest rates at its next meeting. That’s good news for the market because higher rates could spoil the party. But don’t get too comfortable because inflation is lurking around the corner.

This week, we’ll get the latest readings on consumer and producer prices, which are expected to jump due to higher energy costs. Investors are hoping for some low numbers, but they might be disappointed. Will inflation force the Fed to change its mind and tighten its policy sooner than expected? That’s the million-dollar question.

Today, there was no major news to move the market, but there was still some action. The Magnificent Seven (Apple, Amazon, Facebook, Google, Microsoft, Netflix, and Tesla) continued to defy gravity and rise despite higher bond yields. The 2-year yield briefly hit 5%, but then retreated. The Nasdaq led the way and outperformed, while the Dow and Small Caps gave up some early gains, but the S&P held steady throughout the session.

The Dollar had a bad day and dropped to its lowest level since February. Oil prices dipped slightly but remained near their recent highs. Gold swung back and forth but ended up with some gains.

What’s next? We have a busy week ahead, with CPI, PPI, Retail Sales, Triple-Witching OpEx (Options Expirations), and The Fed on the agenda. And don’t forget about the VIX, which is entering its seasonally strong period. Things are about to get very interesting indeed.

Are you ready for some volatility?

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ETFs On The Cutline – Updated Through 09/08/2023

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 (191 vs. 138 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 8, 2023

Ulli ETF Tracker Contact

ETF Tracker StatSheet          

You can view the latest version here.

WALL STREET ENDS LOSING WEEK AS FED FEARS LOOM LARGE

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Wall Street had a rough week, despite a slight uptick on Friday. Investors were worried that the Fed might hike rates sooner and faster than expected, erasing most of the early gains by the end of the day. All the major indexes closed the week in the red, with Small Caps taking the biggest hit.

Apple had a bad week too, as China cracked down on iPhone usage. The AI basket, which was supposed to be the next big thing, also disappointed and fell behind Nvidia. Regional banks continued their downward trend for the fifth time in six weeks.

The latest economic data, such as the lower-than-expected jobless claims, added fuel to the fire of rate hike fears. Traders now think there is more than a 50% chance that the Fed will raise rates in November, after skipping September. August was a tough month, with weak data, and September doesn’t look much better.

Meanwhile, the banking crisis is still simmering in the background, but no one seems to notice. Banks are using more and more of the Fed’s emergency funds, as money market funds attract more cash than ever. $42 billion flowed into money market funds last week, reaching a new record of $5.625 trillion.

This creates a huge gap between money market funds and bank deposits, which keeps growing every week. It means that banks must sell their underwater bonds or borrow from the Fed to meet withdrawals. Neither option solves the banking crisis, which will probably come back to haunt us soon.

Bond yields were mixed today, with the 2-year yield moving away from its 5% peak earlier this week. The dollar kept climbing higher and higher, thanks to rising bond yields. It has now gained for eight weeks in a row.

Oil prices also rose for the ninth time in eleven weeks, nearing the $90/barrel mark. Gold was slightly lower for the week. In short, nothing has changed much, so we are still stuck with the same dilemma: too strong data could lead to higher real rates (bad for risk assets), and too weak data could hurt the next quarter’s earnings.

So, what’s your bet?

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