[Chart courtesy of MarketWatch.com]

1. Moving the markets

Wall Street had a bad day on Wednesday, as tech and consumer stocks dragged the market down. Nvidia, Apple and Tesla were among the worst performers, losing about 3% each. The “Magnificent 7” stocks were not so magnificent after all.

Oil prices soared to their highest level since November, as Saudi Arabia and Russia agreed to keep cutting supply. This pushed up inflation expectations and bond yields, hurting stocks and regional banks.

The Fed may have to raise interest rates sooner than expected, but traders are still betting on a pause later this month. That may change quickly, as oil prices could spoil the party for the dovish crowd.

The economy is sending mixed signals, with manufacturing and services data showing a zigzag pattern. The Citi Economic Surprise Index is falling, while “Hard data” and “Soft Data” are converging. This means that inflation is rising, and growth is slowing – a recipe for stagflation.

Boston Fed President Susan Collins added to the confusion, saying that the Fed can be “cautious” on rate hikes, but also that “further tightening could be warranted”. That’s as clear as mud.

ZeroHedge summed it up like this:

Today’s price action is consistent with the market dynamic we’ve seen play out over the past few months, characterized by elevated sensitivity to economic data, with equity markets seemingly adopting a ‘bad news is good news’ view, rallying on weak growth data, and selling off on strong data – amid fears that too strong data will increase the risk of an additional rate hike.

Bond yields spiked, the dollar rose, oil prices climbed for the ninth day in a row, but gold dipped and found support at its 200-day moving average.

How will the market react to the next economic report?

Continue reading…

2. “Buy” Cycle Suggestions

The current Buy cycle began on 12/1/2022, and I gave you some ETF tips based on my StatSheet back then. But if you joined me later, you might want to check out the latest StatSheet, which I update and post every Thursday at 6:30 pm PST.

You should also think about how much risk you can handle when picking your ETFs. If you are more cautious, you might want to go for the ones in the middle of the M-Index rankings. And if you don’t want to go all in, you can start with a 33% exposure and see how it goes.

We are in a crazy time, with the economy going downhill and some earnings taking a hit. That will eventually drag down stock prices too. So, in my advisor’s practice, we are looking for some value, growth and dividend ETFs that can weather the storm. And of course, gold is always a good friend.

Whatever you invest in, don’t forget to use a trailing sell stop of 8-12% to protect yourself from big losses.

3. Trend Tracking Indexes (TTIs)

The markets had a rough day, as rising bond yields and oil prices scared off the bulls. A late rally trimmed some of the losses, but the mood was still gloomy.

Our TTIs also fell, and we may see a bearish turn in September. That’s because the economy is weakening, and September is historically the worst month for stocks.

This is how we closed 09/06/2023:

Domestic TTI: +1.75% above its M/A (prior close +2.10%)—Buy signal effective 12/1/2022.

International TTI: +3.39% above its M/A (prior close +3.85%)—Buy signal effective 12/1/2022.

All linked charts above are courtesy of Bloomberg via ZeroHedge.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

It was a tough Tuesday for stocks as they started the week with a drop, dragged down by rising oil prices. Saudi Arabia decided to keep cutting its oil production by 1 million barrels per day, pushing the West Texas Intermediate futures above $87 per barrel, the highest since November. That’s gotta hurt!

Meanwhile, Treasury yields also jumped, putting pressure on risk assets. The 10-year yield soared by more than 8 basis points to 4.258%.

Goldman Sachs tried to cheer up the market by lowering its recession odds to 15% and predicting that the Fed will skip a rate hike this month. But who are they kidding? September is usually a bad month for stocks, and investors know it.

Some traders are still hopeful that this year will be different, thanks to the bullish momentum. But history is not on their side.

Factory orders fell less than expected in July, down 2.1% versus a forecast of 2.3%. That’s not much of a consolation, though. The Fed still must balance inflation and growth, and rising oil prices won’t make it any easier.

The Fed wants a soft landing, but it could end up crashing. Small and midcap stocks took a big hit, with the S&P SmallCap 600, the S&P MidCap and the Russell 2000 all losing more than 1.8%. Value stocks also suffered their second worst day relative to growth since May.

Homebuilders and short sellers were not spared either, as bond yields spiked and hurt their portfolios. The gap between the 10-year yield and the Nasdaq keeps widening. Higher yields boosted the dollar, which weighed on gold. But don’t forget that gold usually beats stocks in recessions, as this chart shows.

So, what’s next for the market? Will it bounce back or continue to slide? Stay tuned for more updates.

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

The stock market had a roller-coaster ride on Thursday, as an early rally fizzled out and left only the Nasdaq in the green. The other two major indexes closed slightly lower, snapping a 4-day winning streak. The month of August was a bumpy one for stocks, as the S&P 500 trimmed its losses from nearly 5% to less than 2%. Small caps suffered the most, as they usually do in turbulent times.

Inflation remained a hot topic, as the Fed’s preferred measure, the Core PCE Deflator, rose to 4.2% year-over-year in July, matching expectations but higher than June’s 4.1%. The headline PCE also jumped to 3.3%, the highest since June 2022. But if you take out the housing component, which accounts for a large chunk of consumer spending, inflation is still stuck at elevated levels, as this chart shows.

Bond yields were initially falling, which boosted stocks, but then reversed course and started to climb, which dragged stocks down. It seems that stocks are following bonds closely these days, so lower yields could mean higher stock prices in the near term.

The labor market showed mixed signals, as initial jobless claims dropped to 2023 lows despite a surge in layoffs, but continuing claims rose above 1.7 million last week. The economic recovery seems to have hit a speed bump in August, as various indicators showed the biggest monthly decline since May 2022. The data was also inconsistent, with some measures showing strength and others showing weakness.

The dollar had a strong month, rising the most since February, but has been trading sideways for the last two weeks. The Fed has been talking tough about tapering and hiking rates, but the market is not buying it. The market is pricing in 1.1% of rate cuts by the end of next year, which could be a big mistake if the Fed follows through on its hawkish rhetoric.

The bottom line is that the market is facing a lot of uncertainty and volatility, and we need to be prepared for more swings ahead.

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