Riding The Range

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]
  1. Moving the markets

An early rally fizzled, as uncertainty over the outlook of interest rates kept traders on edge, especially due to the upcoming Fed statement regarding the Jackson Hole meetings. I think Fed head Powell’s position on rates is well known, and his upcoming speech on Friday is likely to disappoint those hoping for more dovishness.

Not helping the markets was an announcement by the German Bundesbank proclaiming that “they don’t see a need right now for fiscal stimulus at this time, even though they expect the economy to shrink again this quarter.”

That was totally opposite of what was expected, and markets started to sag. Then another hawkish nightmare appeared out of nowhere when the Fed’s Patrick Harker opined in an interview that “he doesn’t see any need for further stimulus at the moment.”

Some of his soundbites included:

  1. “Yield curve is only one of many signals.”
  2. “Trade issue makes business decisions difficult.”
  3. “Growth now is exactly what we had anticipated last year.”
  4. “No need for another rate cut, central bank should stay here for a while.”
  5. “Trade resolution would boost growth.”

Ouch. That was not exactly what traders had hoped for, so the markets continued riding the range but managed to eradicate some of the early session losses.

Nevertheless, Fed chair Powell is set to deliver a speech tomorrow, during which investors will be eagerly looking for clues as to whether another rate cut will be on deck for September.

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The Roller Coaster Continues

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]
  1. Moving the markets

Good earnings by consumer heavyweights Target, Lowe’s and Home Depot set the bullish mood early on and pushed equities up to a level that they sustained throughout the session. All of yesterday’s losses were wiped out with the S&P 500 closing exactly at Monday’s price.

The Fed minutes did not offer any earthshaking news other than to confirm that the July rate cut was simply insurance for growth and inflation and considered to be a mid-cycle adjustment. It’s supposed to help counter the effects of weak global growth and trade uncertainty.

Good economic news came from housing sector, as we learned that Existing Home Sales rose YoY and thereby breaking a 16-month losing streak. They came in at +0.6%, while the median sales price also advanced by 4.3% from a year earlier.

Offsetting this good news were reports that the RV industry crashed with domestic shipments to dealers plummeting 20% so far this year, after dropping only 4% for the entire year of 2018. Ouch.

On the global scene, Germany attempted to sell the world’s first 30-year negative yielding bond (-0.11%), which failed miserably. When the dust settled, it turned out that only 824 million Euro of the total 2 billion Euro offering were sold with the Bundesbank now being forced to retain the unsold portion. That’s a big ouch. After all, government bonds need to be sold to cover the ever-growing deficits.

For the week, we saw that Monday was up, Tuesday was down, and Wednesday was up. This rollercoaster may very well continue until the bankers’ Jackson Hole meeting ends on Friday, or the weekend G-7 meeting results, or lack thereof, make their presence felt on Monday.  

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Aimless Meandering—Then A Dive Into The Close

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]
  1. Moving the markets

Numerous attempts by the major indexes to break above their respective unchanged lines were rebuffed, as they ended up diving into the close and breaking a 3-day win streak.

Despite Home Depot’s better than expected quarterly results, the markets struggled for altitude all day with worries about the strength of the US economy, along with political developments in Europe (Italy’s prime minister resigned), weighing on government bonds.

The US 10-year yield slipped again by 6 basis points to 1.55%. In the meantime, Trump continued his assault on the Fed by asking to consider deeper cuts, something like 1%. This contradicts the widely advertised view that we have the “best economy ever.” Well, if we did, interest rates would be rising and not declining, as they have been.

After the 3-day rally, uncertainty affected the mood on Wall Street, as Friday’s speech by Fed head Powell looms large, and you can be sure that every word will be dissected when the bankers’ conference in Jackson Hole ends.

For hints of things to come, traders will be busy analyzing the minutes from the Fed’s July policy meeting, which will be released tomorrow. I expect a wait-and-see attitude to keep the indexes in check till Friday.

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Trade Hope And A Short Squeeze Combine To Keep The Rally Going

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]
  1. Moving the markets

Friday’s rebound did not die today but continued full force thanks to Trump’s successful jawboning about the trade talks. It was more of a concession towards the Chinese telecom giant Huawei, which received a 90-day reprieve, during which it can continue to do business with American companies without needing a case-by-case license.

Reports that Germany may be considering stimulus measures, to pull up their sagging economy, helped the global mood and supported equities for that region. Again, fiscal recklessness is always a positive for equities.

Another big assist came from a giant short squeeze, the biggest in 7 months, which started on Friday and kept bulls happy for the past 2 trading days, as all of last week’s losses have now been recovered.

In the end, despite slightly rising bond yields, the mission was accomplished, and the S&P 500 is now less than 2% away from going green for the month.

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ETFs On The Cutline – Updated Through 08/16/2019

Ulli ETFs on the Cutline Contact

Below, please find the latest High-Volume ETF Cutline report, which shows how far above or below their respective long-term trend lines (39-week SMA) my currently tracked ETFs are positioned.

This report covers the HV ETF Master List from Thursday’s StatSheet and includes 322 High Volume ETFs, defined as those with an average daily volume of more than $5 million, of which currently 199 (last week 206) are hovering in bullish territory. The yellow line separates those ETFs that are positioned above their trend line (%M/A) from those that have dropped below it.

Take a look:                                                                   

The HV ETF Master Cutline Report

In case you are not familiar with some of the terminology used in the reports, please read the Glossary of Terms. If you missed the original post about the Cutline approach, you can read it here.      

ETF Tracker Newsletter For August 16, 2019

Ulli ETF Tracker Contact

ETF Tracker StatSheet          

You can view the latest version here.

REBOUNDING INTO THE WEEKEND

[Chart courtesy of MarketWatch.com]
  1. Moving the markets

After yesterday’s lackluster session to nowhere, the markets found some upside momentum, with the ensuing relief rally reducing some of the losses sustained on Wednesday.

Trying to calm matters was St. Louis Fed President Bullard’s remarks that inter-meeting action would not be necessary, referring to the fact that there is no Fed meeting in August, and that a couple of weeks one way or the other won’t matter.

Then this gag order hit the wires: Fed Chair Powell has banned any public appearances by any Fed Board member, noting that “appearances at conferences have been canceled, all scheduled interviews have been abandoned and any comments on or off the record are outlawed.”

One analyst interpreted this unprecedented action as a reflection of two pressures:

First, economic indicators increasingly suggest the US is heading into a recession with the Dow plunging 800 points on Wednesday.

Second, relations with the White House have reached a new low, with president Trump pinning the success of his presidency upon a strong economy as a recession – Trump believes – would destroy his reputation and kill his reelection chances. As a result, Trump has – correctly – blamed the current woeful state of the global economy on the Fed. The problem is that Trump also “owned” the same state of both the economy and the market for the past two years, so any recession will be entirely his, just as Yellen (and Bernanke) intended, and shift attention away from the Fed.

On the economic side, data was dire, maybe that’s why markets rallied, as Consumer Confidence crashed in August to 92.1 from 98.4 missing all forecasts as per Bloomberg’s survey of economists. Then Housing Starts plunged by a whopping 4.0% MoM and missing expectations for a 0.2% rise. And that despite tumbling interest rates and rising mortgage applications

But the story of the week was bond yields, with the 30-year seeing its biggest crash since August 2011, as it fell to a record low and crossed the 2% level to the downside. As I posted before, the race to the bottom is on, and lower rates appear to be on the menu, with now $17 trillion of global bonds being negative. It’s only a matter of time until we get there as well.

That is, unless a Black Swan event suddenly reverses that trend and catapults yields considerably higher. It looks to me that volatility and uncertainty will be with us in the foreseeable future.

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