1. Moving the markets

The futures markets already indicated a weak opening with equities taking a leg lower based on worries that the current historic rally has exceeded the economic recovery. This was not surprising news, but the real culprit causing some anxiety may have been the upcoming revelation of any policy adjustments to be made during the current two-day Fed meeting. The announcement will be tomorrow around lunch time.

While no major changes are expected, the focus will be on the publication of economic projections, the first ones since last December. None of them were issued during the Covid-19 crisis.

For a change, an afternoon rebound did not materialize, and the major indexes slipped, but the Nasdaq scored another record high and briefly surpassed its 10k level but could not hold it into the close. Nevertheless, it has been an amazing run for the tech heavyweight, especially when considering that the current price is out of sync with forward earnings.

And to remind you again that global liquidity is at the center of this rebound, this chart tells all:

1. Moving the markets

Friday’s upward momentum carried into this week with the major indexes relentlessly reaching for higher levels with the Nasdaq ending at a record high for the first time since February. If this any indication, the Dow and the S&P 500 are on track to follow suit.

Obviously, traders consider the Fed’s actions of keeping credit flowing during this pandemic, AKA reckless money printing efforts, highly successful, thereby totally ignoring the long-term consequences of such actions.

This week, the focus will be on the Fed’s announcement of their updated policy statement on Wednesday, which is set to include the first release of economic projections since December. Expectations are that the central bank will keep interest rates low and hope that more stimulus will be forthcoming will play big role in further market advances.

Should the May jobs report convince these central planners that no more stimulus is needed, the markets will not take that too kindly and will most likely sell off.

You will have heard many opinions as to the varies types of economic recovery we might be in for. Obviously, the most hoped for is the V-shape, which we have seen in equities, as they bounced off the March lows in an almost straight line.

The same can’t be said for the economy, and the various come-back possibilities are explained in this chart:

The jury is still out, but right now it seems that W- or L-shape rebounds reflect current realities, while the V-shape option is a pipedream.

Today’s ramp pushed our International Trend Tracking Index (TTI) above its trend line as well, thereby generating a new “Buy” for “broadly diversified international ETFs/mutual funds.” The effective date will be tomorrow, June 9, 2020, unless there is a large sell-off in the making, at which time, we will hold off another day before making commitments.

1. Moving the markets

The markets bounced around aimlessly all day, with the Nasdaq scoring a new intra-day all-time high early on, despite deteriorating earnings, which apparently was more than traders could handle, and the index headed south for no apparent reason. The Dow and the S&P 500 joined the slide, but only the Dow managed to climb back to the unchanged line.  

Jobless claims were the center of attention, as we learned that “only” 1.87 million people started to claim unemployment last week. For sure, as Bloomberg’s chart shows, the trend is improving, however, the fact is that the eleven-week total of job losses has reached now 42.644 million, which is the worst ever in American history.

Still, this question, as posted by ZH, seems to be on peoples’ minds, although I have answered it on many occasions:

1. What is driving the swift recovery of equities?

a) Fed – 73%

b) Earnings Optimism – 0%

c) Labor market recovery – 6%

d) Further fiscal stimulus – 5%

And if Fed policy supports the bullish theme via its balance sheet expansion, that rally will continue—until one day, when it won’t. That’s why I keep harping on the importance of having a sell stop, just so you can be prepared for that moment in time when this party ends.

Effective today, our domestic “Buy” signal has been confirmed, and we will remain invested, subject to our trailing sell stops.

The whipping boy of the last few weeks has been the US Dollar, which has presented us with the biggest 14-day drop since October 2011, according to ZH. Could this be a precursor of an increase in inflationary trends?

Be that as it may, right now we will follow the major trends in the markets, which according to my work shows that we could be in the beginning stages of a new bull run. Could it reverse? Sure, that’s why we have trailing sell stops to help us with managing portfolio risk.