Fed Official Boosts Market With Dovish Comments, Gold Nears Record High

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets 

The stock market edged up slightly today, continuing its November comeback, after a Fed official hinted that interest rates may not go up any further. Christopher Waller, a Fed governor, said he was confident that the current policy was enough to cool down the economy and bring inflation back to the 2% target. He spoke ahead of the next Fed meeting on December 12-13.

The slight gain today came after a strong month of trading, which will end on Thursday. The S&P 500 is set to end the month with an 8.4% increase, more than making up for the 7.1% drop in September and October. But this also shows that the November rally was not as impressive as it seemed.

The market is now in a wait-and-see mode, as investors look for clues from holiday spending trends. The bulls and the bears are still in a stalemate. And that means that the market may be more choppy than smooth.

The economic data today was not very encouraging, as it showed signs of a slowing economy. Home prices, consumer confidence, and manufacturing all came in below expectations. The economic surprise index took a hit, as the effects of the government stimulus faded.

The Fed governor also warned that the recent easing of financial conditions may not last, and that policymakers should not rely on them to do their job. He said that many factors can affect financial conditions, and that they should be careful.

The market moved sideways for most of the day but managed to squeeze out some small gains thanks to a short squeeze. Bond yields and the dollar both fell, helping the stock market. The 10-year yield dropped to a nearly 4-month low, and the dollar hit another low.

Gold benefited from the weak dollar, and rose to $2,042, close to its record high. Will it break that level this quarter?

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The Fed, The Economy, And The Stock Market: A Tale Of Divergence

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets 

The stock market took a break from its recent rally on Monday, as investors digested the mixed signals from the economy and the Fed. The major indexes fell, ending a four-week winning streak, as the 10-year Treasury yield dropped below 5% after briefly touching that level in late October.

The market shrugged off the warnings from some U.S. retailers that consumer spending is slowing down, even though online sales on Black Friday rose 7.5% year-over-year. Perhaps the weak spending data is a sign that the Fed’s rate hikes are finally having an impact on the economy. Some traders are betting that the Fed is done with raising rates and may even start cutting them in 2024.

The 10-year Treasury yield will be a key factor for the market, especially after this week’s Fed comments and the data on consumer confidence and inflation, which are due on Thursday.

The housing market also showed signs of weakness, as new home sales fell 5.6% month-over-month in October, worse than expected. The September figure was also revised down from 12.3% to 8.6%. Ouch! The dismal home sales, along with the contraction in Texas manufacturing, dragged down the U.S. macro data.

The bond market reacted to the gloomy news, as did the homebuilders and the banks. The dollar continued its slide, which boosted gold to its highest level since May.

As ZeroHedge pointed out in this chart, the S&P 500 is trading way above its fair value based on global liquidity. We know that such divergences don’t last forever, but which way will they resolve? Will the S&P 500 come down to earth, or will the global liquidity catch up?

History suggests that the S&P 500 may have to eat some humble pie—sooner or later.

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Market Bulls Feast On Stocks, Ignore Economic Data And Fed Minutes

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets 

The market bulls were in a festive mood today, as stocks climbed higher despite some gloomy economic data and a delay in OPEC’s decision on oil production. The bond market, however, was not so cheerful, as the 10-year Treasury yield briefly dipped to its lowest level in two months before bouncing back.

The rally was broad-based, with more than half of the stocks on both the NYSE and the Nasdaq advancing. The tech sector was especially strong, as investors shrugged off Nvidia’s disappointing guidance and focused on its solid earnings beat. The chipmaker’s shares dropped 2.5%, but still outperformed the energy sector, which fell 1% after crude oil plunged over 4.5% before recovering some of its losses.

The Fed’s latest minutes did not offer much hope for the rate-cut enthusiasts, as the central bank reiterated its hawkish stance and showed no signs of easing its monetary policy anytime soon. But the market seemed to ignore the Fed’s words and instead priced in a low probability of a rate hike in December.

The economic data was not very encouraging, as jobless claims surged, durable goods orders slumped, consumer sentiment dipped, and inflation expectations rose. These indicators suggested that the US economy was losing steam and facing the risk of a hard landing.

The dollar tried to rally on the back of the Fed’s minutes, but failed to sustain its momentum and ended the day lower. Gold also struggled to hold on to its $2k level, as investors preferred riskier assets.

The S&P 500 followed its seasonal pattern and rebounded from its October lows, catching up with its historical average. The index is now within striking distance of its all-time high, as it heads into the Thanksgiving holiday.

I will be taking a break from writing these summaries until next Monday, so I hope you enjoy your turkey and cranberry sauce.

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Fed Stays Firm On Rates, Markets Stay Hopeful For Cuts

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets 

The Fed dashed the hopes of traders who were looking for some hints of interest rate cuts in the latest meeting minutes. Instead, the central bank said it would keep its policy “restrictive” to tame inflation, which could rise further. The Fed kept the interest rate unchanged at 5.25% to 5.5% in its meeting on Oct. 31-Nov. 1.

Participants continued to judge that it was critical that the stance of monetary policy be kept sufficiently restrictive to return inflation to the Committee’s 2 percent objective over time,” the minutes said.

That sounds pretty hawkish, but the market is still betting on rate cuts starting from May next year. Is that wishful thinking or realistic expectation? History suggests that the Fed usually waits for about 11 months after the last rate hike before cutting rates again. And the last rate hike was in December 2022.

Meanwhile, the economy is showing signs of slowing down, as some major retailers lowered their sales outlooks and missed revenue expectations. Lowe’s stock price fell more than 2%, Best Buy dropped 2.7%, and American Eagle plunged 17.3%. Ouch.

The housing market is also cooling off, as existing home sales hit their lowest level since 2010 and reached a record low in the West. This dragged down the US Economic Surprise index and the Financial Conditions index, which measure how the economy is performing relative to expectations and how easy it is to borrow money.

The stock market retreated, as the short squeeze that lifted the market yesterday ran out of steam and the big tech stocks gave up some of their recent gains. The bond market was mixed, the dollar bounced back, but gold shone brightly and reclaimed its $2k level.

All eyes are now on Nvidia’s earnings report tonight, which could be a make-or-break moment for the chipmaker. Will it follow the footsteps of its rivals AMD and Intel, which reported disappointing results amid the global chip shortage? Or will it surprise the market with strong growth driven by its gaming and data center segments?

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Market Divergence: Nasdaq Nears Record High Amid Tight Financial Conditions And Weak Leading Indicators

Ulli Uncategorized Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets 

The U.S. stock market continued its bullish run as it entered the Thanksgiving week, which will have a shorter trading schedule.

Traders are feeling optimistic after the latest inflation data showed a lower-than-expected increase in consumer prices, easing the fears of a prolonged period of high inflation and aggressive rate hikes by the Federal Reserve. Some analysts even expect the Fed to start cutting rates sooner than later, which could boost the market further.

Among the notable earnings reports this week, Nvidia stands out as the star performer of the year, with its stock price soaring more than 200% in 2023. The chipmaker will announce its third-quarter results on Tuesday, and investors are eager to see if it can maintain its momentum amid the global chip shortage and rising competition.

Meanwhile, the tech sector also got a boost from the drama surrounding OpenAI, the artificial intelligence research organization that was co-founded by Elon Musk. Several of its top researchers threatened to leave the organization and join Microsoft, which has a close partnership with OpenAI. This news sent Microsoft’s stock to a new record high, while Nvidia also benefited from its involvement in OpenAI’s projects.

On the other hand, the bond market saw a strong demand for the 20-year Treasury auction, which pushed the yields lower and supported the stock rally. However, the rally lost some steam towards the end of the day, as some traders took profits ahead of the holiday. The U.S. dollar also weakened to its lowest level since late August, breaking below its 200-day moving average. However, this did not help gold, which remained flat and slightly lower.

Despite the bullish sentiment in November, there is still a glaring discrepancy between the financial conditions index, which measures the tightness of credit and liquidity in the market, the leading indicators, which predict the future economic activity, and the Nasdaq, which is hovering near its all-time high. This divergence suggests that the market may be overvalued and disconnected from the underlying fundamentals.

Can the market sustain its rally in the face of these challenges?

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ETFs On The Cutline – Updated Through 11/17/2023

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 (83 vs. 179 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.