The Morning Call
8/28/23
The
Market
Technical
The S&P ended
the week slightly higher than where it started though it was a roller coaster
ride. The most significant point was it
touched the upper boundary of a very short-term downtrend and fell back. I read that as meaning the current correction
isn’t over though there are lots of pundits out there that disagree. Whatever the case, the S&P still hasn’t
set a bottom (so far) to this little retreat.
It could be nothing worse than the 8/18 low of 4329. But there are other candidates: (1) its 100
DMA [~4313], (2) the lower boundary of its short-term uptrend [~4183] and
(3) its 200 DMA [~4145]. That said, the mainstream consensus is that
this is just a sell-off in a bull market.
Whatever the case,
the task remains to wait till the S&P finds support, evaluate any new
economic data then make an educated guess based on the dataflow whether or not,
this is indeed a selloff in a bull market.
You know that I am skeptical; but if it continues to appear that
scenario is unfolding, I will put some money to work.
A
no-rules market.
All caught up?
https://www.zerohedge.com/the-market-ear/tme-weekend-all-caught
Setting up for a
bounce.
https://www.zerohedge.com/the-market-ear/setting-bounce-0
TLT’s chart is
still ugly on a long-term basis. However,
last week it did get something of a reprieve---making a sharp move up on
Wednesday. That is the good news. The bad news is that in doing so, it made a big
gap up, which as you know, I think will have to be filled. I think this pin action is more indicative of
the high level of investor uncertainty about recession/inflation than it is a
sudden turn in opinion. Of course, I am
subject to being wrong. So, we just have
watch the follow through.
Like the long Treasury, GLD made big reversal last week, voiding the test of its 200 DMA, but making a big gap up open in the process---which needs to be closed. Still, on a long-term basis, its chart is in good shape and there is no reason not to expect another challenge of its all-time high---especially, if bond prices continue to rally.
The dollar was up again---making its way to the
upper boundary of its short-term uptrend.
It clearly has the most solid chart on a short-term basis. But usually, a strong dollar is not a plus
for stocks; so, we need to keep that in the back of our minds as we watch
equities.
Friday in the
charts.
https://www.zerohedge.com/markets/hawkish-powell-horrible-data-spark-yield-curve-pain-nasdaq-gains
Fundamental
Headlines
The
Economy
Last Week Review
Another
slow week for economic data. What we got was balanced. Primary indicators were one positive, one
neutral, one negative. Overseas, the data was slightly negative.
The
results continue mixed---one week positive, one negative---keeping in question
whether or not (1) inflation is in the rear-view mirror and (2) we will get a
‘soft’ landing.
The
major economic event for the week was Powell’s speech at Jackson Hole. It was generally anticipated as being of a
hawkish tone and that is exactly what we got---meaning rates stay higher for
longer.
On
the other hand, there has been a growing lack of consensus about just how hawkish/dovish
the Fed needs to be (which I have tried to document in this letter) as it
relates to both (1) inflation and (2) recession. Which has made the prior narrative [inflation
in the rear-view mirror along with a soft land] questionable.
Part
of the reason for this growing disparity of opinion is simply the lack of
consistency in the numbers; and part the mounting concern about the health of
the Chinese economy, the world’s second largest.
This
all spells economic uncertainty and that tends to not be great for the Market.
For
the moment, I am sticking with my recession forecast though (1) my conviction
remains weak and (2) if there is one, I have no idea of its magnitude.
Economic
Downturn Still A Risk To Stocks - RIA (realinvestmentadvice.com)
I
am also maintaining my position that the Fed loosens at the first sign of
trouble. Although here too, my level of
certainty is quite low. In short, I am
just as confused as everyone else.
In
that kind of environment, the probabilities of a mistake in monetary and/or
fiscal policy rises and with it the odds of the one scenario that would screw
almost all investors/forecasters/current elected officials, i.e., either the
Fed sticks to its guns (made necessary by a lack of improvement in the
inflation stats), pushing the economy into a rough recession or the economy
falls into a severe recession of its own accord weighted down by years of
monetary/fiscal mismanagement.
Longer
term, irrespective of how low inflation goes in the short term, irrespective of
whether or not we have a recession and if so, how deep it will be, we are still
faced with an economy growing at well below its historic secular rate and a
base rate of inflation above 2%.
Correcting those self-inflicted wounds won’t be easy. It will take years
of fiscal and monetary restraint to do so. And that would mean less fiscal
stimulus and interest rates staying higher for longer than many now expect---which
unfortunately is not apt to happen.
Lance Roberts
agrees (must read)
https://www.zerohedge.com/markets/deficit-surge-will-lead-lower-rates-not-higher
The
Economy
US
International
The June Japanese
leading economic indicators index was reported at 108.9, in line.
Other
The
Fed
A bank failure few are talking about.
Fiscal Policy
The US budget deficit is exploding.
https://www.bloomberg.com/news/articles/2023-08-24/bond-market-flashes-warning-as-us-budget-deficit-surges?srnd=premium&sref=loFkkPMQ
Recession
US consumers
showing signs of stress.
https://www.nytimes.com/2023/08/25/business/consumer-retail-shopping.html?utm_campaign=What%20I%20Am%20Reading&utm_medium=email&_hsmi=271753357&_hsenc=p2ANqtz-_qvnrHArmWH9rqXx0cxcWZ55HUefCAzOm1AbAsu7oYFh6M2IiQIc0WI_S63LahQb7IyX1FMAL9nqP9JkiWNgg0TrO8gg&utm_content=271753357&utm_source=hs_email
Household debt at all-time high.
https://www.cnbc.com/2023/08/25/household-debt-is-at-an-all-time-high-but-2008-was-still-worse.html?utm_campaign=What%20I%20Am%20Reading&utm_medium=email&_hsmi=271753357&_hsenc=p2ANqtz--MWpX_4yf6FVi4R7jFSjoa_5dtKvo8LJVKSueVrOl32eXPxx2Db1cxoU2NecakGNrJjom2CUt8GoyGnayvhZj3JTLayA&utm_content=271753357&utm_source=hs_email
Bottom line.
The latest from BofA.
https://www.zerohedge.com/markets/nyet-zero-hartnett-warns-nasdaq-just-peaked-while-brics-11-end-globalization
News on Stocks in Our Portfolios
3M settles litigation over defective earplugs.
What
I am reading today
The state protects itself while crime
against ordinary citizens surges.
https://www.zerohedge.com/political/state-protects-itself-while-crime-against-ordinary-people-surges
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