ETF Tracker Newsletter For February 9, 2024

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ETF Tracker StatSheet          

You can view the latest version here.

S&P 500 TOPS 5,000 ON LOWER INFLATION, BUT TECH-BOND GAP RAISES QUESTIONS

[Chart courtesy of MarketWatch.com]

  1. Moving the markets 

The S&P 500 finally cracked the 5,000 mark today, thanks to a belated Christmas gift from the government: a lower inflation rate for December.

The index had flirted with the milestone on Thursday, but only sealed the deal today. Small Caps had a big week, squeezing the shorts and beating the Nasdaq (and the S&P) in the race for returns. The Dow, on the other hand, was a snooze fest, ending the week flat.

The MAG7 stocks continued their winning streak for the fifth week in a row, while Regional Bank stocks had a rough ride, but recovered from their mid-week slump.

The market rally has been fueled by strong earnings, tame inflation, and a robust economy, making this the fifth week of gains in a row. But don’t pop the champagne just yet because today’s rally was mostly driven by tech stocks, which could be a sign of trouble ahead.

The government revised the December consumer price index down to 0.2%, from 0.3%, giving investors a reason to cheer. The core inflation rate, which excludes food and energy, was unchanged. Treasury yields dipped briefly after the news, but then bounced back to around 4.17% for the 10-year.

Next week, we’ll see if January’s inflation data can keep the party going. Tech stocks were the stars of the show today, pushing the S&P 500 over the 5,000 mark. Nvidia and Alphabet each gained about 1%, while Cloudflare soared 18% on stellar earnings and lifted the cloud sector with it.

The market is acknowledging that the Fed will be less aggressive in cutting rates this year, with the odds of a March cut below 20% and less than five cuts priced in for 2024.

The dollar was steady this week, but edged up slightly, while gold edged down slightly. Oil prices bounced back to over $76, after last week’s plunge.

This chart shows the divergence between tech stocks and bond yields, which usually move in sync.

Is this a temporary glitch, or a sign that tech stocks are in a bubble that will burst when yields rise?

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 02/08/2024

Ulli ETF StatSheet Contact

ETF Data updated through Thursday, February 8, 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 +7.83% and is in “Buy” mode as posted.

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Will CPI Revisions Shock The Market? S&P 500 Hovers Near 5,000

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets 

The major indexes barely budged today, except for the S&P 500, which flirted with the 5,000 mark for the first time in history. Small caps, on the other hand, had a blast and soared by more than 1% thanks to a huge short squeeze.

Traders were busy digesting earnings reports, with some big winners and losers. Disney soared 10% after smashing earnings expectations and raising its outlook. Arm, the chipmaker and designer, also jumped 55% after delivering a stellar earnings report and a rosy profit forecast.

Bond yields climbed higher today, with the 10-year Treasury note reaching 4.15%. This put a damper on stocks, even though most companies have reported better-than-expected earnings that have boosted Wall Street’s confidence in the economy and corporate growth.

This season, 77% of S&P companies have beaten their lowered earnings estimates, while 68% have surpassed their sales targets. These strong results, along with the relentless rise of mega cap tech stocks, have lifted the market in recent days. But not everyone is happy. Some traders are worried about the narrow leadership of 2023′s favorites.

They blame the Fed for dampening hopes of a rate cut in March, after Powell and his colleagues said it was not needed. NY Community Bank sank lower today, fueling fears of another banking crisis.

The MAG7 stocks were mostly flat, the dollar surged on higher yields and solid claims data, while gold was unchanged. Oil recovered from last week’s slump and jumped over 3.5% to above $76.

Traders are now eagerly awaiting tomorrow’s CPI revisions.

Will they shock the market with a huge upside surprise?

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How Long Can The Tech And AI Rally Last In The Face Of Rising Rates And Bank Woes?

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets 

The stock market had a good day on Wednesday, as the S&P 500 got close to the 5,000 mark for the first time ever. Investors were happy with the latest earnings reports, which mostly beat the low expectations.

Big tech and AI companies did especially well, but they also hogged most of the spotlight. The problem is the economy is growing too fast for the central banks to handle. They are trying to keep inflation under control, but they don’t know when and how much to cut interest rates.

Fed chair Powell has been putting the brakes on the rate-cut hopes, making the market more volatile.

Meanwhile, the regional banks are in trouble. New York Community Bancorp tanked 11% after getting a junk rating from Moody’s. The bank lost money and cut its dividend in the fourth quarter, thanks to the falling values of commercial real estate. It was not the only one, and some fear it could trigger a new banking crisis.

The Fed speakers did not help much, as they gave mixed signals about the rate outlook. Some said they would wait and see, some said they would cut rates two or three times this year, some said they were not done with inflation yet, and some said they might raise rates later. It was a confusing chorus of voices, and the market did not buy it.

The Nasdaq did not care, though, as it led the rally with the Mag7 stocks hitting new highs. NVDA reclaimed its $700 throne, while the others followed suit.

The rally happened despite rising bond yields, which usually hurt stocks. The dollar was flat, gold was choppy, and oil was up.

ZeroHedge thinks this is all a repeat of the 1999-2001 bubble, and that the expiration of the BTFP (Bank Term Funding Program) will end it all at the top.

But maybe they are wrong, and this time is different.

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No Rate Cut In Sight, Powell Says Some Banks May Go Bust

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets 

The Dow Jones Industrial Average rose on Tuesday, but it was hardly a cause for celebration. Wall Street was busy digesting the latest earnings reports and the Fed’s reluctance to cut rates anytime soon. The S&P 500 and Nasdaq barely scraped by with positive returns, thanks to some last-minute shopping by bargain hunters.

Traders were left scratching their heads after Fed Chair Powell poured cold water on their hopes for a March rate cut. He also warned that some banks may go bust due to the shift in downtown real estate demand. Powell’s comments sent bond yields lower, but it still dampened the mood of the bulls.

The market rally also lacked breadth, as only a few stocks carried the weight of the gains. This raised doubts about the sustainability of the uptrend, especially as volatility looms on the horizon. The last two days have been a taste of what’s to come in the next few weeks.

ZeroHedge summed up the mixed messages from the Fed speakers as follows:

The Good: KASHKARI: Inflation is on target; we don’t care about politics or elections.

The Bad: MESTER: We may cut rates later this year; no need to hurry or ease the balance sheet.

The Ugly: YELLEN: The dollar is losing its appeal; some countries are looking for alternatives; but don’t worry, it’s not a big deal.

The regional banks were not impressed by the Fed’s rhetoric. The KRE index plunged 12% in the last 5 days, signaling trouble in the sector. The NY Community bank was the worst performer, dropping like a rock. Is this the first domino to fall, or just a blip on the radar? Gold bounced back as bond yields retreated, while the Mag7 stocks slid lower.

Powell’s Sunday remarks also included this gem:

“Some banks will have to close or merge because of this. They’ll be smaller banks, mostly. These are losses. It’s a change in how people use downtown real estate. And the result will be losses for the owners and the lenders, but it should be manageable.”

Sounds like he’s preparing us for the worst.

Maybe it’s time to avoid banks altogether?

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Stocks And Bonds Go Their Separate Ways After Powell Dashes Rate Cut Hopes

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets 

The market had a rough start today as Fed chair Powell poured cold water on the hopes of rate cut seekers. He repeated his hawkish stance in a “60 Minutes” interview last night, saying he needed more proof that inflation was under control before he would consider lowering rates.

This sent bond yields soaring and stock prices tumbling. But the major indexes showed some resilience and bounced back from the lows, thanks to a short squeeze and some bargain hunting. Still, it was not enough to end the day in the green.

The market also digested some solid economic data that showed the service sector was doing well in January. The ISM nonmanufacturing index came in at 53.4, beating the Dow Jones estimate of 52. This was good news for the economy, but bad news for those who wanted a rate cut.

Meanwhile, investors were hoarding cash in money market funds, signaling a mixed sentiment about stocks. On the one hand, high cash levels could mean that investors were skeptical about the record highs on the SPX. On the other hand, high cash levels could also mean that investors had plenty of ammo to buy the dips.

Regional banks (KRE) took a hit again but trimmed their losses. The dollar got a boost from higher yields, but gold suffered. Since mid-January, stocks (green) and bonds (red) have diverged, as this chart shows. But we know they will eventually converge again.

The question is: who will blink first? Will bond yields come down to earth or will stocks crash and burn?

Read More