The Morning Call
9/5/23
The
Market
Technical
Last week, the S&P
voided the very short-term downtrend and reset its 50 DMA to support. That opens the way for it to challenge (1) its
recent trading high [~4607], (2) the upper boundary of its short-term uptrend
[~4742] and (3) its all-time high [~4818].
So, it appears that the August sell off is over; and further, stocks seem
likely to go higher. How high is the big
question; and I think not a lot. I believe that the economic/political fundamentals
will keep a lid of equity prices.
But for traders,
this is probably a good time to buy.
From sell off to
surge.
TLT was down last
week and its chart is still ugly on a long-term basis. As I noted in the
previous Monday Morning Chartology, the long Treasury had made a huge gap up
open in the prior week that needed to be filled. So, a retreat to do so is not
surprising. This week, I am showing a twenty-year
chart. As you can see, the long bond is
very close to a twenty-year low. That
doesn’t mean that it can’t go lower; but on a relative valuation basis, it stands
out.
GLD had another
good week. However, it still has that
gap up open that needs to filled. But I still
see no reason not to expect another challenge of its all-time high.
The dollar had a see saw week but continued its
move toward the upper boundary of its short-term uptrend. I remind you that 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.
Fundamental
Headlines
The
Economy
Last Week Review
Lots
of data last week. In the US, despite
some stats pointing toward recession, the numbers were overwhelmingly positive with
primary indicators more narrowly divided: three plus, one neutral and two
minus. While we have to be pleased with
those results, there were just another gyration in a string of up weeks
followed by down weeks. We need follow
through to establish a trend and we simply don’t have that right now.
Net,
net, the issues of whether or not (1) inflation is in the rear-view mirror and
(2) we will get a ‘soft’ landing are not settled. Indeed, they may have become a bit more confusing.
Because now, there is (1) a growing school of thought that we may have already
been in a recession and it is over and (2) the continuing concern about the
health of the Chinese economy, the world’s second largest.
Or
maybe we have been in a recession and it is not over.
Is
China’s economy a ticking time bomb?
https://www.bbc.com/news/business-66636403
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.
Financial
conditions are tighter than you think.
The
Financial Conditions Are Tighter Than You Think - RIA (realinvestmentadvice.com)
And
the labor market is weaker than you think.
https://scottgrannis.blogspot.com/2023/09/of-concern-jobs-growth-is-slowing.html
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
this 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%.
https://www.zerohedge.com/markets/hartnett-not-once-1787
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.
Rates are up; we are
just starting to feel the heat.
The
Economy
US
International
July Japanese household
spending fell 2.7% versus projections of +0.7%; the August services PMI was
54.3, in line; the August composite PMI was 52.6, also in line.
The July German
trade balance was E15.9 billion versus forecasts of E18.0 billion; the August services
PMI was 47.3, in line; the August composite PMI was 44.6 versus 44.7.
July EU PPI was
-0.5% versus consensus of -0.6%; the August services PMI was 47.9 versus 48.3;
the August composite PMI was 46.7 versus 47.0.
The August Chinese
Caixin services PMI was 51.8 versus estimates of 53.6; the August composite PMI
was 51.7 versus 51.9.
The August UK
services PMI was 49.5 versus projections of 48.7; the August composite PMI was
48.6 versus 47.9.
Other
Update on big four economic
indicators.
Recession
The
question of consumer financial health.
https://theweek.com/economy/1026198/american-consumers-credit-
crisis?utm_campaign=afternoon_newsletter_20230831&utm_source=afternoon_newsletter&refid=10E92AB193F4857411E414DAFABEE91E&utm_medium=email
China
China’s
largest home builder reels.
https://www.nytimes.com/2023/09/04/business/china-country-garden-debt-crisis.html
Bottom line
The current risk/reward in bonds.
https://awealthofcommonsense.com/2023/08/a-closer-look-at-risk-reward-in-bonds-right-now/
Ten reasons to like bonds now.
https://www.advisorperspectives.com/commentaries/2023/09/02/top-10-reasons-to-like-bonds-now
Stock/bond ratio
poised to keep downward bias.
https://www.zerohedge.com/markets/us-stock-bond-ratio-poised-keep-downward-bias
News on Stocks in Our Portfolios
What
I am reading today
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