8/5/24
The Market
Technical
You don’t need this chart to know what a pasting
the S&P took last week. In the process it (1) voided its 50 DMA, (2) made a
new lower high and lower low and (3) is about its challenge its 100 DMA [~5307].
As bad as the week felt, the index could fall a great deal more before challenging
its 200 DMA [~5007] or the lower boundary of its short term uptrend [~4639]. So,
if it can’t hold its 100 DMA, there is a lot of room for additional downside.
To quote myself from last week: I
have no clue if the Market is about to fall off a cliff or stage and major
rebound. Although we could get a hint from (1) a huge dataflow due out this
week [FOMC meeting, heaviest reporting week of this earnings season] and (2) we
are entering a season that historically renders poor Market performance. We got a clue. Holding
the 100 DMA is important.
The fear gauge (the VIX) explodes. An observation from
Carter Worth (my favorite technician): volatility rises at Market turning points.
https://sherwood.news/markets/vix-index-fear-gauge-sp500-volatility-spiking/
Broken markets.
https://www.zerohedge.com/the-market-ear/broken-markets-and-vix-extremes
Conversely, the long bond had a spectacular week. Again,
quoting myself: On the plus side, it is above all three DMAs,
two (now
all three) of which are turning up…..Plus, it also seems to be forming a pennant
formation (bombed out of existence).
All this was precipitated by the investors
reversing on a dime their perception of bad news---it is no longer good news (i.e.,
rate cuts) but now truly bad news (recession). That, of course, need not
necessarily be so; but until there is information to the contrary, the uptrend
is likely to continue.
GLD had a good week---not surprising given the spike
in bond prices (lower yields) and the selloff in the dollar. If those indices
continue in their current respective directions, then GLD should work its way
higher. I retain my GDX position; but I remain nervous.
Lower interest rates generally mean a lower dollar
and this time is no different. UUP got hammered hard, selling down through all
three DMAs. It remains within a short term downtrend as well. But as long as
investors are worried about recession and pushing for lower rates, this
downtrend will likely continue.
Friday in the charts.
https://www.zerohedge.com/markets/market-ka-mauling
Fundamental
Headlines
The Economy
Week
in review
The stats last week terrible for the second week in
a row (though the overseas numbers were mixed) as were the primary indicators (one
plus, zero neutral, three minus). This is clearly not indicative of a ‘muddle
through’ scenario. As noted above, this makes two weeks back to back of not
just lousy data, but really lousy data. While two weeks is hardly a trend, the
stats are so bad that they necessitate a serious reconsideration of my ‘muddle
through’ forecast. I have said repeatedly that it increasingly appeared that my
original call of a recession looked like it would turn out to be the correct
one. My general rule before altering my outlook is a solid four week trend. So,
I will be hanging on to the ‘muddle through’ scenario a bit longer. That said, investors
have clearly decided that the risk of a recession has escalated dramatically.
But Ed Yardeni says that the Market could be overreacting.
Beryling Toward Rate Cuts
(yardeniquicktakes.com)
For the moment, my prognosis remains:
(1) the economy ‘muddles through’ and (2) inflation
has likely seen its lows. But my confidence in that outcome is low.
However, as I have previously noted (1) my original
recession call may turn out to be correct and (2) while I continue to believe
that profligate fiscal policy and an accommodative Fed will ultimately lead to
higher inflation, a recession could work against that scenario in the near term.
And I would add that if (1) recession is the
ultimate scenario and (2) the Fed maintains its tight money policy, then
conditions could develop even worse.
US
International
The June EU PPI was +0.5% versus projections
of +0.4%.
The July German services PMI came in at 52.5 versus
consensus of 52.0; the July German composite PMI was 49.1 versus 58.7; the July
EU services PMI was 51.9, in line; the July EU composite PMI a 40.2 versus
50.1; the July UK services PMI was 52.5 versus 52.4; the July UK composite PMI
was 52.8 versus 52.7.
Other
Monetary Policy
This is a decent account of (consistently failed)
monetary policy: how can twelve eggheads think that they can use a single
interest rate instrument to control/fine tune a multibillion/trillion economy? I
couldn’t agree more. The only shortcoming in this analysis, in my opinion, is
the failure to include the impact of money supply, which is also a major factor
of monetary policy, on economic growth/inflation.
https://www.cato.org/blog/fed-dot-plot-forecasting-fiascos-june-2008-june-2021-0
Inflation
The argument for lower inflation. The problem that I
see with the authors’ thesis is that easy monetary policy greased the wheels of
production to allow its financing through the Covid disruption---as the Fed
should have done. But as the economy improved it should have reduced the money
supply. It did, but not nearly as fast as it expanded money supply during the
disruption. Most likely because it had to help the Treasury finance a
profligate fiscal agenda. So now we have an economy back on track with too much
money sloshing around the system. And that is inflationary.
Recession
Big Four
recession indicators (not much sign of one here).
https://www.advisorperspectives.com/dshort/updates/2024/08/02/the-big-four-recession-indicators
Auto
repos rose 23%.
https://www.zerohedge.com/personal-finance/car-repos-rise-23-yoy
Civil
Strife
The
agenda is clear.
https://www.zerohedge.com/political/uk-riots-agenda-becomes-clear
Geopolitics
Russia continues to make progress.
https://www.zerohedge.com/geopolitical/waves-ukraine-civilians-flee-russia-makes-steady-gains-east
Europe’s recipe for disaster.
https://www.zerohedge.com/political/europes-recipe-disaster-von-der-leyen-program
Israel braces for five front war.
Bottom line
The latest from BofA.
https://www.zerohedge.com/markets/hartnett-old-school-risk-and-why-you-should-sell-first-rate-hike
Voting machine (techincals) versus weighing
machine (fundamentals).
https://klementoninvesting.substack.com/p/voting-machines-vs-weighing-machines
July dividends by
the numbers.
https://politicalcalculations.blogspot.com/2024/08/dividends-by-numbers-in-july-2024.html
The impact of rate cuts on stocks, bonds, and cash
(remember a rate cut is different from a disinverting of the yield curve).
https://awealthofcommonsense.com/2024/08/the-impact-of-fed-rate-cuts-on-stocks-bonds-cash/
What the disinverting means.
Inversion Of Yield Curve Finally Reversing -
RIA (realinvestmentadvice.com)
While this article is written for traders, it is
just as pertinent to long term investors. Knowing when to Sell, in my opinion,
is more important than knowing when or ‘what to Buy. Countless studies have
shown that my ten year old granddaughter can pick twenty stocks that has every
bit as good of chance of outperforming the S&P as a professional money
manager. The value added comes from knowing when to Sell, i.e., avoiding big
losses. And it is the discipline of that Discipline that is important. By that I
mean, you can have a discipline totally different from mine as long as it
prevents big losses in the long run. For more on my Sell Discipline you can go
to Investing for Survival’s web site.
https://traderfeed.blogspot.com/2024/08/overcoming-emotional-trading-part-one.html
News on Stocks in Our Portfolios
Illinois Tool Works Inc. (NYSE:ITW) declares $1.50/share quarterly
dividend, 7.1% increase from prior
dividend of $1.40.
FactSet Research Systems (NYSE:FDS) declares $1.04/share quarterly
dividend, in line with
previous.
What I am reading today
Visit Investing for Survival’s website (http://investingforsurvival.com/home) to learn more about our Investment
Strategy, Prices Disciplines and Subscriber Service.
No comments:
Post a Comment