Markets Ignore Powell’s Hawkish Tone And Rally On Buy-Program

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

The markets shrugged off Powell’s hawkish speech at Jackson Hole and rallied on Monday, boosted by a massive buy-program in the final hour. Powell reiterated that the Fed is ready to raise rates further if needed, but also said that it would be careful, and data driven.

Lagarde, the ECB chief, echoed her cautious tone and did not hint at any imminent rate hike. Traders are now looking ahead to some key economic indicators later this week, such as the PCE inflation index on Thursday and the non-farm payroll report on Friday.

These data points could influence the Fed’s decision on when to start tapering its bond purchases and raising interest rates. The market action on Monday was also driven by a short squeeze in some stocks, such as Nvidia, which recovered from an early drop.

Bond yields were mixed, with the 2-year yield briefly topping 5.1% before settling above 5%. The dollar was flat, while gold rose to a 3-week high. The volatility is likely to continue as traders brace for more news on the economy and monetary policy.

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ETFs On The Cutline – Updated Through 08/25/2023

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 (128 vs. 134 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 25, 2023

Ulli ETF Tracker Contact

ETF Tracker StatSheet          

You can view the latest version here.

POWELL TALKS TOUGH ON INFLATION BUT MARKETS REMAIN OPTIMISTIC

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Fed Chair Powell’s hawkish remarks at the Jackson Hole symposium did not deter the markets from rallying higher. Powell made it clear that he was ready to raise interest rates further if inflation and growth remained high. Here are some of his key points:

  • He is watching for signs that the economy is not cooling as expected.
  • He thinks inflation is still too high and needs more time to come down.
  • He wants to see more evidence of improvement in non-housing services inflation.
  • He says above-trend growth and a strong job market could justify more rate hikes.
  • He plans to keep policy tight until he is confident that inflation is on a sustainable downward path.

However, traders seemed to ignore the implications of Powell’s words and bet that bond yields would not rise much. They also hoped that the Fed was close to ending its rate-hiking cycle. One analyst joked that the Fed’s message was: “We’ll hike again if we need to but won’t if we don’t.” That’s not very helpful.

Meanwhile, the data this week was mostly disappointing, according to ZeroHedge. The Citi Economic Surprise Index fell sharply, retail stocks suffered losses, and Nvidia’s stock plunged after a brief surge on earnings news.

On the other hand, bond yields were mixed, with the 2-year yield briefly topping 5%. The dollar had a volatile week but ended slightly higher. Gold rose above $1,900 and stayed there despite the post-Powell swings.

Even with the wild fluctuations, the AI Boom/Bust scenario is still on track, as this chart shows. We are approaching the moment of truth.

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 08/24/2023

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ETF Data updated through Thursday, August 24, 2023

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 12/01/2022

Click on chart to enlarge

This is our main compass, the Domestic Trend Tracking Index (TTI-green line in the above chart). It has now broken above its long-term trend line (red) by +0.68% and remains in “Buy” mode.

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Markets Sell Off Despite Nvidia’s Record Earnings And Revenues

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Nvidia’s stellar earnings and revenues were not enough to impress the markets today, as the tech giant saw its shares end the session unchanged. This was a classic case of “buy the rumor, sell the fact,” a well-known adage that describes how investors often anticipate good news and then cash out when it is confirmed.

The tech sector in general faced mixed views from traders, with some remaining optimistic and others wary of rising yields. Higher yields tend to hurt valuations and affect more richly valued stocks negatively.

Meanwhile, the economy showed signs of weakness, contrary to the hopeful outlook of some. Retail was hit hard yesterday, and today we learned that Durable Goods orders plunged by the most since the Covid lockdowns. This means that demand for long-lasting items such as cars, appliances, and machinery was very low.

Another sign of trouble was Dollar Tree’s fall after a disappointing earnings report on rising “shrink.” Shrink is a term that refers to inventory loss due to shoplifting or employee theft. Many other retailers like Dick’s Sporting Goods, Foot Locker, Target, Lowe’s, and Walmart have also warned that shrink is getting out of hand at their stores, putting pressure on their margins.

Almost all sectors, except banks, ended the session in the red. As I posted before, this year’s rally has been driven by a few stocks with the breadth, especially on the Nasdaq, being the worst it’s ever been, as this chart shows.

Bond yields resumed their upward trend with the 2-year reaching 5% again. That sent the dollar higher partly due to fears of what the Fed chair might say tomorrow after the conclusion of the Jackson Hole symposium.

Will he sound hawkish or dovish? That is the question that keeps investors on edge.

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Bulls Bet On Nvidia To Save The Market From August Slump

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

The market was eagerly waiting for Nvidia’s earnings report, which is due out later today. The chipmaker was expected to post impressive growth in both profit and revenue, thanks to its dominance in the artificial intelligence (AI) sector.

The bulls were optimistic and pushed the major indexes higher, while the bears took a back seat. The lower bond yields also helped boost the market mood, as the 10-year Treasury yield fell to 4.18%, down from 4.33% yesterday.

However, not everything was rosy in the market. The rally this year has been driven by a handful of AI stocks, leaving many others behind. The manufacturing sector has been weakening, while the consumer spending has been surprisingly strong. These conflicting signals have created confusion and uncertainty among investors.

The bad news continued to pile up today, especially for the retailers. They reported disappointing results that showed a more-stressed American consumer than the market had anticipated. This was the worst week for retail earnings since April, according to the Citi Economic Surprise Index.

The dollar dropped on the gloomy outlook, while gold rose over 1%. Crude oil also slipped, as demand worries weighed on prices.

In the individual stock universe, the bears had a field day. Peloton plunged 23%, as it faced lawsuits and recalls over its treadmills. Footlocker had its worst day ever, as it missed earnings and revenue estimates. Nike extended its losing streak to 10 days, as it faced supply chain issues and boycotts in China. Nvidia was one of the few bright spots, as it bounced back ahead of its earnings tonight.

The earnings report from Nvidia is critical for many reasons. It would determine the fate of the AI boom or bust scenario, as well as the direction of the broader market. Nvidia is seen as a bellwether for the tech sector, and its performance could have ripple effects on other stocks. Investors are hoping for a positive surprise from Nvidia, but they also know that expectations are high, and anything less than stellar could trigger a sell-off.

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