Stocks Stagnate As Investors Eye Fed’s Inflation Battle

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

In today’s trading session, stock performance remained static as traders sought stability after last week’s downturn. Despite a general uptick in the market, the rise in Treasury yields, particularly the benchmark 10-year yield which ascended by 5 basis points to 4.426%, tempered broader gains.

The Dow Jones Industrial Average recorded its poorest weekly showing since March 2023, while the S&P 500 saw its steepest weekly decline since the start of the year, nearly 1%.

However, the markets concluded the previous week on an upbeat note, buoyed by a jobs report that surpassed expectations. The increase in part-time employment has fueled optimism for sustained economic strength and the potential for continued corporate earnings growth, despite the prospect of enduring higher interest rates.

Investors remain hopeful, interpreting negative news as potentially beneficial for the stock market, with expectations of interest rate cuts later in the year.

This sentiment is underpinned by anticipation for the Federal Reserve’s upcoming release of the March consumer and producer price indexes, which are pivotal indicators of the Fed’s success in combating inflation. Economists are forecasting a 0.3% rise in the CPI for the past month and a 3.5% increase on an annual basis.

As the market braces for the potential impact of the CPI, PPI, and the release of the FOMC minutes, stocks have shown little movement, while bond yields have inched upward.

Amidst geopolitical unrest and concerns over a potential Federal Reserve policy misstep, both bitcoin and gold have experienced significant gains.

However, the likelihood of a rate cut in June has dipped below 50%, and major stock groups like the MAG7 have stalled. The dollar experienced an initial surge but subsequently declined, and bitcoin approached its record high of $73k before retreating.

Oil prices initially dropped following reports of Israel’s troop withdrawal from Gaza, only to rebound after the announcement of a limited withdrawal and subsequent attack on Rafah.

With bond yields climbing yet not influencing the S&P 500’s trajectory, all eyes are on the Federal Reserve.

Will the Fed’s minutes reveal the future course of monetary policy this Wednesday?

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ETFs On The Cutline – Updated Through 04/05/2024

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 (271 vs. 270 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 April 5, 2024

Ulli ETF Tracker Contact

ETF Tracker StatSheet          

You can view the latest version here.

STOCKS RALLY AMID SURGING GOLD AND OIL PRICES: CAN THE TREND CONTINUE?

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Stocks made a robust recovery on Friday morning, bouncing back from the index’s most significant downturn in over a year.

Investors welcomed the news of a jobs report that surpassed expectations, despite a concurrent rise in interest rates. The job market expanded by 303,000 positions in March, exceeding forecasts, while the unemployment rate held steady at 3.8%, aligning with predictions. A closer examination revealed that most of these new jobs were part-time positions.

Following the jobs report, Treasury yields saw an uptick, and stock prices experienced volatility. The market is caught in a tug-of-war, with traders desiring a robust economy to bolster corporate earnings on one hand, and on the other, hoping for a softer jobs market that would prompt the Federal Reserve to start reducing interest rates.

This conundrum highlights the resilience of the U.S. economy, which has largely withstood the impact of rising rates. After Thursday’s Wall Street selloff, where the Dow plunged approximately 530 points or 1.35%—its sharpest decline since March 2023—stocks have shown weakness as interest rates continue an upward trend.

While macroeconomic data presented a positive outlook this week, survey data remained subdued, contrasting with the more robust hard data. Consequently, expectations for interest rate cuts in 2024 have diminished, with June predictions now uncertain.

Inflation expectations, which had been tempered, are climbing once again. Despite this, stocks rallied until a statement from the Fed’s Bowman regarding stalled inflation progress curbed investor enthusiasm:

“Inflation progress has stalled; won’t be comfortable cutting until disinflation returns.”

This comment caused stocks to retreat from their peak levels, yet the market closed with a bullish tone.

Over the week, the major indexes ended in negative territory, with Small Caps and the Dow leading the decline, while the MAG7 managed a slight weekly increase.

The energy sector shined, ending the week as the only sector in the green. Bond yields rose, with the 2-year nearing year-to-date highs.

The dollar fluctuated and ended slightly lower, but gold was the standout performer, reaching a new record high above $2,330. Gold has been on an upward trend, rising for 9 of the last 10 days and 6 of the past 7 weeks.

Crude oil prices also climbed, surpassing $87.50, largely driven by escalating geopolitical tensions, which in turn pushed gasoline and pump prices higher.

The ongoing disparity between gold prices and the 10-year yield raises questions about the sustainability of this divergence.

How long can this trend persist before we see a significant shift in the financial system?

With Nvidia’s shares having fallen 11% from their all-time high last month, I wonder if this chart holds the key to this puzzle?

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 04/04/2024

Ulli ETF StatSheet Contact

ETF Data updated through Thursday, April 4, 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 +12.25% and is in “Buy” mode as posted.

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Market Tumbles Amid Oil Surge And Rate Cut Uncertainty

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

The stock market began on a positive note but quickly reversed course as investors braced for the upcoming March jobs report.

Rising oil prices and concerns that the Federal Reserve might pause interest rate cuts contributed to negative market sentiment. Midday, crude oil prices surged, with WTI oil reaching over $86 per barrel, its highest since October, fueling worries about inflation’s resurgence.

Last week’s initial jobless claims exceeded expectations, reaching a peak not seen since January. The Commerce Department also reported a trade deficit of $68.9 billion in February, marginally above projections. The possibility of the Federal Reserve maintaining higher interest rates for an extended period has pressured stocks throughout the week.

Federal Reserve Chairman Jerome Powell indicated that while rate cuts are possible this year, more evidence of inflation trending towards the 2% target is needed before any action is taken. Consequently, Wall Street has tempered its expectations for rate reductions.

Despite a strong economy and ongoing inflation concerns, there are signs of a broader market rotation, moving away from the dominant tech giants. Federal Reserve officials echoed Powell’s sentiments, suggesting a cautious approach to rate adjustments:

  • Barr: Issues with banks’ commercial real estate will take time to resolve.
  • Kugler: A reduction in rates might be appropriate this year.
  • Harker: Inflation remains excessively high.
  • Barkin: The Fed can afford to wait for more clarity before cutting rates.
  • Goolsbee: It’s important to monitor the weakening job market.
  • Kashkari: If the economy is strong, why reduce rates?
  • Mester: More progress is needed on housing and core services inflation.

However, the market’s mood shifted dramatically when oil prices spiked following news of the UAE severing ties with Israel, prompting a sharp market downturn.

The day ended grimly, with early gains turning into losses of nearly 1.5%, and the Dow and Small Caps down over 3% for the week. Short sellers benefited from the most-shorted stocks, while the MAG7 suffered significant losses after opening strongly.

Bond yields fell, Bitcoin recovered to $69k, and gold reached a new high for the sixth consecutive day before retreating. Gasoline prices soared to a seven-month high, driving up pump prices.

Considering these developments, one might wonder: “Will the S&P reach 4800 first, or will the 10-year yield hit 3.5%?”

This question, thanks to ZeroHedge, arises as we consider whether today’s market reversal is a sign of things to come.

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Wall Street’s Rollercoaster: Early Gains Wiped Out Amid Last-Hour Sell-Off

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Stocks initially surged as Wall Street sought to recover from the early second-quarter slump.

However, by the end of the day, most gains had evaporated, leaving the major indexes struggling to maintain positive territory after an unexpected large-scale sell-off in the final hour.

Nvidia, a standout in artificial intelligence, saw its shares rise in Wednesday’s morning session, contributing to a more positive outlook across the market. Other tech giants, such as Netflix and Meta, also enjoyed gains of over 1%.

Despite this, the specter of higher interest rates continued to loom over the market, a trend that has persisted since the start of the quarter. The release of ADP’s data today, which showed a larger-than-anticipated increase in private payrolls for March, signaled economic resilience.

This comes amid growing investor anxiety regarding the Federal Reserve’s future interest rate decisions. Atlanta Fed President Raphael Bostic, in a statement to CNBC, projected only one rate cut this year, expected in the fourth quarter.

His comments echoed the sentiments of several Federal Reserve officials, including Chair Jerome Powell, who addressed the media and public across the nation today. Market predictions indicate a 94% chance that interest rates will hold steady at the Federal Reserve’s May meeting.

Expectations for a rate cut in June have decreased significantly, now standing at a 54.2% likelihood, down from 70.1% just a week prior.

The yield on the U.S. Treasury 10-year note reached a peak not seen since November, curbing stock market advances. Concurrently, oil prices hit their highest since October. Despite a challenging start to the quarter, some traders remain hopeful, suggesting that the market is poised for a period of stabilization rather than a steep decline.

Bond yields, which had been rising, settled unchanged by the close of trading. The dollar fell to a one-week low, which, coupled with higher bond yields, propelled gold to its fifth consecutive record close, nearly reaching the $2,300 mark.

As gold continues its ascent, one must wonder: What insights does the precious metal hold that remains elusive to traders?

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