Looks like a devaluation of the Chinese yuan might be in the offing. Observers call this the 'nuclear option' for getting China's export oriented economy moving again, and could also explain their extremely aggressive purchases of gold and oil in recent months. In the past, Chinese devaluations of the yuan have caused turmoil in the US stock market (mid-late 2015) -


>>> Yuan Devaluation Debate Surfaces as Traders Weigh Next FX Shock

Bloomberg

4-28-24


https://www.bloomberg.com/news/articles/2024-04-29/yuan-devaluation-debate-surfaces-as-traders-mull-next-fx-shock


Supporters say sharp currency drop can help China’s economy

But such a move is controversial as it can trigger outflows..

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>>> Imports hold back US economy in first quarter, inflation flares up


Reuters

by Lucia Mutikani

Apr 25, 2024


WASHINGTON (Reuters) - The U.S. economy grew at its slowest pace in nearly two years in the first quarter amid a surge in imports and small build-up of unsold goods at businesses, signs of solid demand that together with an acceleration in inflation reinforced expectations the Federal Reserve would not cut interest rates before September.

The cooler-than-expected growth reported by the Commerce Department in its snapshot of first-quarter gross domestic product on Thursday, which also reflected a downshift in government spending, exaggerated the moderation in economic activity. Domestic demand, a better growth measure, was strong as consumer spending moderated slightly while business investment picked up and the housing recovery gained steam.

Trade and inventories are the most volatile GDP components, and are often subject to revision when the government updates its growth estimates. Fed officials are expected to leave rates unchanged at the U.S. central bank's policy meeting next week.

"The Fed will likely see the GDP report as solid, while the upward surprise to inflation will support the central bank's case for waiting longer before cutting rates," said Daniel Vernazza, chief international economist at UniCredit.

GDP increased at a 1.6% annualized rate last quarter, the slowest pace since the second quarter of 2022, the Commerce Department's Bureau of Economic Analysis said. Economists polled by Reuters had forecast GDP would rise at a 2.4% rate, with estimates ranging from a 1.0% pace to a 3.1% rate.

The economy grew at a 3.4% rate in the fourth quarter. The first-quarter growth pace was below what U.S. central bank officials regard as the non-inflationary growth rate of 1.8%.

Excluding inventories, government spending and trade, the economy grew at a 3.1% rate after expanding at a 3.3% rate in the fourth quarter. That also dispels the notion that government spending was fueling the economy.

The U.S. economy, which has outperformed the economies of other advanced nations, is being supported by a resilient labor market.

U.S. Treasury Secretary Janet Yellen told Reuters in an interview that she was focused on consumer and business spending.

"Those two elements of final demand came in line with last year's growth rate ... so this is the underlying strength of the U.S. economy that showed continuing robust strength and an economy firing on all cylinders."

Price pressures heated up by the most in a year, with a measure of inflation in the economy increasing at a 3.1% rate after rising at a 1.9% pace in the October-December quarter.

The personal consumption expenditures (PCE) price index excluding food and energy surged at a 3.7% rate after increasing at a 2.0% pace in the fourth quarter.

The so-called core PCE price index is one of the inflation measures tracked by the Fed for its 2% target. Inflation was boosted by increases in the costs of services like, transportation, insurance and housing, which offset a decline in goods prices such as motor vehicles and parts.

The strong readings pose an upside risk to March PCE inflation data due to be released on Friday, though much would depend on revisions to the January and February data.

The Fed has kept its benchmark overnight interest rate in the 5.25%-5.50% range since July. It has raised the policy rate by 525 basis points since March of 2022.

Stocks on Wall Street were trading lower. The dollar slipped against a basket of currencies. U.S. Treasury yields rose.

TIGHT LABOR MARKET

A significant slowdown in the labor market is not yet evident. The Labor Department's weekly jobless claims report showed initial claims for unemployment benefits fell 5,000 to a seasonally adjusted 207,000 in the week ending April 20.

The number of people receiving benefits after an initial week of aid, a proxy for hiring, declined 15,000 to 1.781 million during the week ending April 13. The so-called continuing claims data covered the period during which the government surveyed households for April's unemployment rate.

Continuing claims fell between the March and April survey periods, implying the unemployment rate was likely unchanged after dipping to 3.8% last month from 3.9% in February.

Low layoffs are keeping wages high, sustaining consumer spending, which accounts for more than two-thirds of economic activity. Consumer spending grew at a still-solid 2.5% rate, slowing from the 3.3% growth pace rate notched in the October-December quarter. Spending was driven by healthcare, financial services and insurance, which more than offset a decline in goods, including motor vehicles and gasoline.

Spending is likely to gradually cool this year. Lower-income households have depleted their COVID-19 pandemic savings and are largely relying on debt to fund purchases. Recent data and comments from bank executives indicated that lower-income borrowers were increasingly struggling to keep up with their loan payments.

Though income increased at a $407.1 billion rate compared with the fourth quarter's $230.2 billion pace, the gains were eroded by inflation and higher taxes. Income at the disposal of households after accounting for inflation and taxes rose at a 1.1% rate versus a 2.0% pace in the October-December quarter.

The saving rate decreased to 3.6% from 4.0% in the prior quarter.

"The recent stickiness in inflation lends downside risk to the near-term forecast for consumption as it could weigh on real disposable income," said Ryan Sweet, chief economist at Oxford Economics.

Inventories were whittled down, rising at a $35.4 billion rate after increasing at a $54.9 billion pace in the fourth quarter. Inventories subtracted 0.35 percentage point from GDP growth. Part of the spending was satiated with imports, which resulted in the trade deficit widening to $973.2 billion from $918.5 billion in the October-December quarter. Trade chopped off 0.86 percentage point from GDP growth.

Government spending decelerated to a 1.2% rate from the 4.6% pace notched in the October-December quarter amid a decline in federal government outlays, mostly defense. Business spending picked up as companies invested in artificial intelligence.

Investment in nonresidential structures like factories contracted for the first time in more than year as the boost from policies by the Biden administration to bring the production of semiconductor manufacturing back to the U.S. faded.

Residential investment recorded its fastest pace of growth since the fourth quarter of 2020, thanks to rising home sales and housing construction, despite higher mortgage rates.

"Don't underestimate this economy," said Shannon Grein, an economist at Well Fargo.

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>>> GDP: US economy grows at 1.6% annual pace in first quarter, falling short of estimates while inflation increases


Yahoo Finance

by Josh Schafer

Apr 25, 2024


https://finance.yahoo.com/news/gdp-us-economy-grows-at-16-annual-pace-in-first-quarter-falling-short-of-estimates-while-inflation-increases-123328820.html


The US economy grew at its slowest pace in nearly two years last quarter as inflation topped Wall Street estimates.

The Bureau of Economic Analysis's advance estimate of first quarter US gross domestic product (GDP) showed the economy grew at an annualized pace of 1.6% during the period, missing the 2.5% growth expected by economists surveyed by Bloomberg. The reading came in significantly lower than fourth quarter GDP, which was revised up to 3.4%.

Meanwhile, the "core" Personal Consumption Expenditures index, which excludes the volatile food and energy categories, grew by 3.7% in the first quarter, above estimates of 3.4% and significantly higher than 2% gain in the prior quarter.

The data's release comes as investors try to gauge when the Federal Reserve will start cutting interest rates and if the central bank can achieve a soft landing, where inflation comes down to its 2% target without a significant economic downturn.

“This report pours cold water on the misleading narratives of a reaccelerating economy," EY chief economist Gregory Daco wrote in a research note following the print. "As we enter the spring, the underlying growth mix continues to signal robust momentum, but demand growth is gently cooling leading to easing inflationary pressures.”

Economists pointed out that a large reason GDP for the first quarter came in softer than expected was weaker data in trade and exports, which together weighed on GDP growth for the quarter by about 1.2 percentage points.

"The deceleration in GDP growth will not worry the Fed as the details are better than the headline would suggest," Oxford Economics chief US economist Ryan Sweet said.

"The headline number really belies the underlying strength," Deutsche Bank senior US economist Brett Ryan told Yahoo Finance.

Ryan said the print doesn't cast further overall concern on a potential slowdown brewing in the US economy and believes areas like inventories and exports, which feed into GDP, will rebound next quarter.

He noted that the surprise rise in inflation was the "big story" from Thursday's data release, and markets seemed to agree.

The 10-year Treasury yield (^TNX) added nearly seven basis points to reach above 4.7% for the first time since early November 2023. All three major indexes shot lower after the release. In morning trading, the S&P 500 (^GSPC), Dow Jones Industrial Average (^DJI) and Nasdaq Composite (^IXIC) were all off more than 1%.

"The recent firmness in inflation will keep interest high for longer," Sweet wrote.

<<<



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In addition to RSI for the main stock indices, another indicator I'm using is the $VIX, since when its RSI approaches or reaches overbought (RSI of 70), this has consistently identified stock market bottoms (see below). The $VIX had an RSI reading over 70 yesterday, and is currently ~ 68, so this suggests that a near term bottom could be near.

I figure a lot will depend upon Israel's response to the Iranian bombing. Since the US has told Netanyahu pretty bluntly that the US will not support his retaliatory efforts, it seems doubtful that he'll do anything really big. Who knows, but I figure that after a few more days the financial markets will go back to concentrating more on corporate earnings. Anyway, I re-upped my stock allocation to 20%, so will go with that for now. I figure a conservative approach might be 12.5% as Core (LT buy/hold), and 7.5% as Flex, but still a 'work in progress'.


2022 - late Sept / early Oct

2023 - March

2023 - August

2023 - late Sept thru Oct

2024 - mid Feb

2024 - April



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Chart-wise, the main stock indices are nearing oversold, based on the RSI (under 30 is oversold) -

DJIA ------ 31
S+P 500 - 39
Nasdaq -- 42
Russell --- 37


Wall Street is waiting to see Israel's response to the Iranian bombing, but if nothing happens soon then the near term bottom in stocks might be in (?)




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>>> All eyes on inflation print as Q1 earnings season kicks off: What to know this week


Yahoo Finance

by Josh Schafer

April 7, 2024


https://finance.yahoo.com/news/all-eyes-on-inflation-print-as-q1-earnings-season-kicks-off-what-to-know-this-week-115748545.html


A robust jobs report couldn't save stocks from weekly losses as a spike in oil prices amid tensions in the Middle East and worries over the Federal Reserve's rate cut path put a damper on the market's hot start to the year.

For the week, the Dow Jones Industrial Average (^DJI) led the losses, falling nearly 2.3%, or more than 900 points. This marked the Dow's worst weekly performance in more than a year. Meanwhile, the S&P 500 (^GSPC) fell nearly 1% and the tech-heavy Nasdaq Composite (^IXIC) slipped 0.8%.

In the week ahead, a fresh reading on inflation and the start of first quarter earnings season will greet investors.

On the corporate front, JPMorgan (JPM), Wells Fargo (WFC), BlackRock (BLK), and Citi (C) are set to report earnings along with Delta Air Lines (DAL).

Elsewhere in economic news, minutes from the Federal Reserve's March meeting and an update on consumer sentiment are on the schedule.

The rate debate

While the Fed maintained its forecast for lowering interest rates three times this year at its last meeting, there's growing discussion about whether the central bank will make fewer cuts — or even hold off on them altogether.

On Thursday, Minneapolis Fed president Neel Kashkari suggested the Fed may not cut interest rates at all this year if inflation progress stalls. And after the March jobs report showed the labor market remains remarkably resilient, Apollo Global Management chief economist Torsten Sløk said the report is in line with his previous call for no cuts this year. (Disclosure: Yahoo Finance is owned by Apollo Global Management.)

"We are sticking to our view that the Fed will not cut interest rates this year," Sløk wrote in a note to clients.

Others believe Friday's data showed some positive developments on the supply side of the labor market, helping bolster the case that a strong labor market and wage growth won't necessarily fuel inflation.

"We see the report as supporting Chair Powell's view that the Fed can start a cautious and gradual easing cycle later this year — as long as the incoming data on inflation show improvement," Bank of America US economist Michael Gapen wrote in a research note on Friday.

Price check

The week ahead will provide another update on the inflation story with the release of the March Consumer Price Index on Wednesday. After some have noted seasonal effects could have caused sticky inflation readings to start the year, economists will be closely watching to see if inflation returned to its downward trend in March.

Wall Street expects an annual gain of 3.5% for headline CPI, which includes the price of food and energy, a noted increase from the 3.2% headline number in February. Prices are set to rise 0.4% on a month-over-month basis, in line with February's rise.

On a "core" basis, which strips out the food and energy prices, inflation is expected to have risen 3.7% year over year, a slowdown from the 3.8% increase seen in February. Monthly core price increases are expected to clock in at 0.3%, slower than the 0.4% increases seen in January and February.

"The March CPI report will be a key indication of whether the pickup in inflation at the start of 2024 was a function of early-year noise or if inflation's journey back to the Fed's target has been drawn out materially," Wells Fargo senior economist Sarah House wrote in a note to clients. "We believe it will show hints of both dynamics at play."

A new earnings season kicks off

Delta is set to report earnings on Wednesday before the bell, an appetizer for investors before a slew of the nation's largest financial institutions, including JPMorgan, officially usher in the first quarter reporting season on Friday.

Broadly, Wall Street expects the first quarter to set the tone for a robust year of earnings growth among S&P 500 companies. Consensus expects first quarter growth for S&P 500 companies of 3.2% compared to the year prior. For the full year, Wall Street sees S&P 500 earnings growing 10.9%.

From a broad perspective, two key themes to watch will be which sectors are seeing earnings growth and, as always, how company executives think the current economic environment will impact the rest of their year.

Within the sector action, Wall Street strategists will be closely following whether earnings pick up in areas outside of technology, as they've recently helped lead a broadening of the stock market rally.

Part of that rally has been backed by an expectation that earnings will begin to grow among the 493 S&P companies that weren't a part of the Magnificent Seven-led rally in 2023. Deutsche Bank chief equity strategist Binky Chadha believes signs of that earnings rotation will begin this quarter with megacap growth and tech seeing slower year-over-year earnings growth than the prior quarter.

"We can always talk about price action and whether, you know, the rally is widening but at the end it's about earnings and fundamentals," Chadha told Yahoo Finance. "We think outside megacap tech, you'll see a pickup in earnings growth, whereas for megacap tech you'll see the beginning of a slowdown basically in earnings growth."

While Chadha isn't predicting a moment where the floor falls out during tech earnings this quarter, slower sequential growth in that sector met with a pickup in earnings in other sectors should "encourage" further rotation in the market, he said.

Weekly calendar

Monday
Economic data: New York Fed one-year inflation expectations, March (3.04% previously)

Earnings: No notable earnings.

Tuesday
Economic data: NFIB Small Business Optimism, March (90.0 expected, 89.4 previously)

Earnings: WD-40 (WDFC), Tilray (TLRY)

Wednesday

Economic data: Consumer Price Index, month-over-month, March (+0.4% expected, +0.4% previously); Core CPI, month-over-month, March (+0.3% expected, +0.4% previously); CPI, year-over-year, March (+3.5% expected, +3.2% previously); Core CPI, year-over-year, March (+3.7% expected, +3.8% previously); Real average hourly earnings, year-over-year, March (+1.1% previously) MBA M

Mortgage Applications, week ending April 5 (-0.6%); FOMC meeting minutes

Earnings: Delta Air Lines (DAL), Rent the Runway (RENT)

Thursday
Economic data: Initial jobless claims, week ending April 6 (221,000 previously); Producer Price Index, month-over-month, March (+0.3% expected, +0.6% previously); PPI, year-over-year, March (+1.6% previously)

Earnings: CarMax (KMX), Constellation Brands (STZ)

Friday
Economic data: Import prices, month-over-month, March (+0.4% expected, +0.3% previously); Export prices, month-over-month, March (+0.1% expected, +0.8 previously); University of Michigan consumer sentiment, April preliminary (80.0 expected, 79.4 previously);

Earnings: BlackRock (BLK), Citigroup (C), JPMorgan (JPM), Progressive (PGR), State Street (STT), Wells Fargo (WFC)

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>>> Why the Fed is wading into uncharted waters: Morning Brief


Yahoo Finance

by Jared Blikre

April 4, 2024


https://finance.yahoo.com/news/why-the-fed-is-wading-into-uncharted-waters-morning-brief-100027194.html


Wall Street is all but convinced the Federal Reserve will cut rates this year.

Most sell-side desks are penciling in one 25-basis-point cut in June, with another two to three similar cuts by year-end. Fed Chair Jerome Powell has telegraphed rate cuts are coming since his pivot late last year.

Even the bond market agrees, though that confidence is waning.

But recent hotter-than-expected data in the US is prompting questions of whether rate cuts are advisable for an economy that is finally coming off the inflation boil — and is even showing nascent signs of reacceleration in certain areas.

Tuesday's release of the March ISM Manufacturing PMI is a good example. It was stronger than analysts estimated and, more importantly, topped 50 for the first time since late 2022. This indicates the manufacturing sector is in an expansion phase once again (though additional data points are needed to confirm).

Meanwhile, the unemployment rate sits well below the historical average at 3.9%, GDP is humming at 3.4%, and progress to bring inflation to heel remains slow and "bumpy."

Powell's big headache right now is an economy that reaccelerates, requiring further rate hikes. This is the so-called no landing scenario.

An economy that ran too hot and stayed there was the fate of Paul Volcker, who led the Fed in the late 1970s and early 1980s. Volcker presided over a "double-dip" recession as he tamped down inflation that at one point spiked to 15% annually.

It would be supremely ironic if the same fate befell Powell, forcing another round of uncomfortable rate hikes — just as rate cuts are on the horizon.

Yahoo Finance crunched the numbers, and over the last 50 years, the Fed has presided over 22 rate-cutting cycles. Most were short-lived — especially during the period of high inflation in the US that persisted through the 1970s and 1980s.

But what's clear from the chart is that the Fed didn't change directions nearly as often as during those inflationary decades. And inflation is only one of many factors that have changed in the intervening decades.

Volcker was a bit of a maverick who famously targeted the money supply as opposed to interest rates or the size of the Fed's balance sheet. And it wasn't until his successor Alan Greenspan that we even got an official monetary policy statement after each Fed meeting that said what the Fed intends to do.

Clearly, the Fed is a different animal than it was decades ago — as is the US economy — as is the world writ large.

It's tempting to read the Wall Street reports that can handicap rate cut odds to three decimal places and tell you where the S&P 500 will land on the final trading day of the year.

But the safe bet is to remember that, at best, history only rhymes. And when it comes to the US economy, perhaps it's not "this time is different." Arguably, each time is different.

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>>> What are Jeff Bezos, Mark Zuckerberg up to? US billionaires sell $11 billion in stock


Hindustan Times

By HT News Desk

Mar 12, 2024


https://www.hindustantimes.com/business/us-billionaires-sell-11-billion-in-stock-what-are-jeff-bezos-mark-zuckerberg-up-to-is-a-financial-disaster-looming-101710144481684.html


American billionaires are selling stocks and not in small numbers at all. So what has happened in the past few days? Apollo Global Management's Leon Black enacted his first-ever sale after 34 years shedding $172.8 million in his equity firm. Walmart's Walton family sold $1.5billion in a week. In final two months of 2023, Mark Zuckerberg sold nearly half a billion dollars of Meta Platforms Inc. shares. Jeff Bezos sold another 14 million Amazon shares, worth around $2.4billion bringing the total number of shares he has sold in the firm to about 50 million.

Experts do not see this as a good sign as they said that this could be because of looming US presidential elections this year. Finance firm consultant Alan Johnson told Fortune last month, 'If you're reading the tea leaves and looking at what may happen with our politics in the next year or so, things are pretty good right now - the markets are up. With our politics and everything else going on geopolitically, maybe it won't be as good a year from now or two years from now."

This coms as S&P 500 has risen more than 27 per cent in the past year adding billions to the portfolios of billionaires. So the stockholders could be taking advantage of current tax breaks which were brought during the Donald Trump administration, the expert said.

But some financial market players believe that this stock dump reflects something larger behind the scenes. American Hartford Gold, a company that shills gold and other metals to investors, said that large liquidations may be a sign of an impending economic dip as Senior Director Mechi Block said that these CEOs were “getting out before the tech bubble bursts”.

"Billionaire CEOs like [Jeff] Bezos, [Mark] Zuckerberg, Jamie Dimon, and the Walton family are selling off massive amounts of their own stocks, and analysts think the CEOS may be bracing for an economic downturn," he said, adding, “An overheated stock market continues to climb to new heights as investors feed that frenzy out of fear of missing out, economic insiders are unloading billions of dollars worth of stocks.”

“Meta stock has soared 186 percent, JPMorgan is up nearly 30 percent, and Amazon has actually surged close to 90 percent. All three companies are trading close to record highs,” he explained, adding, “Typically if CEOs are buying shares, it shows a confidence in the future growth potential of that company. It is also possible these billionaire's view from above could be giving them a different perspective of the economy, and where it's headed.”

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>>> The great central bank policy reversal kicks off


Reuters

by Balazs Koranyi and Howard Schneider

March 22, 2024


https://finance.yahoo.com/news/analysis-great-central-bank-policy-061353930.html


FRANKFURT/WASHINGTON (Reuters) -The world's biggest central banks are on the starting line of reversing a record string of interest rate hikes but the way down for borrowing costs will look very different from the way up.

There will be no floodgates or fireworks. Instead, banks on opposite sides of the Atlantic are likely to move in the smallest increments with periodic pauses, fearing that ultra-low unemployment could rekindle inflation rates still above their targets.

The eventual bottom for interest rates is also set to be far higher than the historic lows of the last decade and mega-shifts in the structure of the global economy could put borrowing costs on a higher path for years to come.

Central banks started to jack up rates from late 2021 as post-pandemic supply constraints and surging energy prices on Russia's war in Ukraine sent inflation into double-digit territory across much of the world.

This seemingly synchronized response tamed prices and inflation will be just above or already at target - 2% for most big economies - this year.

"The bottom line is that across the OECD, central banks... are softening up again, or are about to do so," investment bank Macquarie said in a note to clients.

Indeed, the Swiss National Bank became the first major central bank (to) ease policy on Thursday with a surprise 25 basis point cut to its key rate as inflation is already in the 0% to 2% target range.

The move also ends rampant investor speculation that policymakers will be hesitant to move before the U.S. Federal Reserve since any rate cut is certain to weaken a currency and push up imported inflation.

The European Central Bank is bound to be next in June after incessantly repeated references to that meeting painted the bank into a corner.

The Fed and the Bank of England both hinted they could be next but have kept their language sufficiently vague to make moves in either June or July possible, provided data do not upset plans.

Still, investors expect the Fed, the ECB and the BoE to each deliver only 75 basis points of cuts by the end of this year, in three 25 basis point moves, tiny changes compared to rate hikes in 2022 when they sometimes increased rates by that much in a single day.

The pricing also suggests cuts at just three out of the five meetings each will hold between June and the end of the year, so pauses are also on the cards.

To be sure, these banks are not the first to cut rates. Some emerging market economies, like Brazil, Mexico, Hungary and the Czech Republic have all cut rates already, but financial markets take their cue from the major central banks, so their influence on financial instruments is oversized.

OUTLIER

The Federal Reserve could in fact end up being the outlier this time.

The U.S. economy is chugging along and the Fed even upgraded its growth projections this week, meaning it may end up cutting rates when growth remains strong, or delaying cuts if inflation proves stubborn. In Europe, data continues to paint a bleak picture, with activity stabilizing at a low level.

The U.S. election in November adds to the Fed's dilemma.

Policymakers do not want to be seen interfering with the vote, so if they cut, they need to do it well clear of November.

"Traditionally, the Fed would not pivot rates policy to cushion inequality," Societe Generale strategist Albert Edwards said. "But growing inequality has been a key issue ever since the 2008 Global Financial Crisis triggered a backlash against ‘The Establishment’ - most evident in the rise in popularism."

"Might the unfolding inequality crisis force the Fed to bow to intense political pressure to cut rates faster and deeper? I think that is entirely plausible," Edwards said.

Fed Chair Jerome Powell in congressional testimony earlier this month said policymakers would "keep our heads down and do our jobs" ahead of the elections.

All the while Europe continues to struggle. Germany is in recession, Britain is barely growing after a recession, and the rest of the continent is staying in positive territory mostly from unexpectedly strong data out of Southern Europe, traditionally the euro zone's weak spot.

Where rate cuts could end in either 2024 or 2025 remains far too uncertain but policymakers appear confident that the ultra low rates - negative in some cases - will not be revisited.

In fact, some argue that the world is undergoing such profound changes that the historic downtrend in the so-called neutral rate, which neither stimulates nor slows growth, could reverse.

"We may now be facing such a turning point," ECB Executive Board member Isabel Schnabel said this week.

"The exceptional investment needs arising from structural challenges related to the climate transition, the digital transformation and geopolitical shifts may have a persistent positive impact on the natural rate of interest."

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>>> January economic data challenges soft landing narrative


Yahoo Finance

by Josh Schafer

February 19, 2024


The growing economic consensus has hit a bump in the road.

Over the past several months a string of stronger-than-expected data had many investors embracing a possible soft landing, in which inflation would fall to the Federal Reserve's 2% goal without a severe economic downturn.

Recent data over the past week has challenged that narrative. January inflation reports from the Consumer Price Index (CPI) and Producer Price Index (PPI) showed prices increased more than economists projected in the last month. And the January retail sales report showed sales dropped by more than economists had expected. In other words, neither inflation nor consumer strength improved.

To some, one month's prints could be points of concern, but not necessarily game changers.

"Let's not get amped up when you get one month of CPI that was higher than what you expected," Chicago Fed President Austan Goolsbee said during a question-and-answer session hosted by the Council on Foreign Relations in New York on Wednesday. "It is totally clear that inflation is coming down."

While Goolsbee may have a point that one print might not change a trend, the recent string of January data is notable because it's largely the first chunk of data to challenge the soft landing narrative since Federal Reserve Chair Jerome Powell hinted the US economy may be headed to the ideal outcome during the December Fed meeting.

"The data is stacking up against investors in a way that's making people more nervous," SoFi head of investment strategy Liz Young told Yahoo Finance Live.

Prior to the readings in the past week, the data hadn't worked against investors. Fourth quarter economic growth had come in higher than expected. The January jobs report shocked economists. And the December retail sales print came in better than anticipated, all while wage increases continued to provide a positive outlook for consumer spending and inflation continued to moderate.

After this week though, economists are cutting their projections for first quarter gross domestic product (GDP), a popular economic growth measure. Goldman Sachs has shifted its forecast from 2.9% annualized growth in the first quarter entering the week down to 2.3%. The Atlanta Fed's GDP tracker moved down to 2.9% from a 3.4% projection on Feb. 8. Not auspicious for the economic growth component of a soft landing.

The data is also moving projections for Personal Consumption Expenditures (PCE), the Fed's preferred inflation gauge, ahead of its release later this month. Goldman now projects core PCE, which excludes the volatile food and energy categories, increased 0.43% in January, an increase from its prior forecast of 0.35%. Bank of America's economics team also sees a reading near 0.4%.

Notably, this would bring the six- and three-month annualized rates, which had been celebrated recently as tracking below the Fed's 2% target, back above the 2% level. Not auspicious for the second component of a soft landing.

"While January data are often noisy, the inflation data do suggest that disinflation took two steps back in January," Bank of America US economists Stephen Juneau and Michael Gapen wrote in a note to clients on Friday.

Juneau and Gapen wrote that the January inflation data vindicates the Fed's "wait-and-see approach" to cutting interest rates, and that they agree with the new market consensus that the first interest rate cut will come in June rather than March or May.

This marks a stark shift in investor sentiment on Fed cuts. Investors are now pricing in a roughly 35% chance the first cut comes in May, per the CME FedWatch Tool. A month ago, investors had placed a 97% chance that the first cut would come by the end of the May meeting.

With the Fed rate cut question mostly answered for now, the looming question remains whether the twin inauspicious data points of inflation and consumer strength have upended hopes for a soft landing.

Gapen noted in a weekly economic roundup that it's still too early to tell.

"Our (perhaps unsatisfying) take is that investors should remain in wait-and-see mode," he wrote.

"The surprises in jobs, inflation, retail sales, and [industrial production] were all probably a combination of signal and noise. ... we need to see a few more weeks' worth of data before drawing strong conclusions on the trajectory of the economy."

Consumers, for their part, are still saying they're doing great.

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>>> Rickards’ Five 2024 Forecasts


BY JAMES RICKARDS

DECEMBER 12, 2023


https://dailyreckoning.com/rickards-five-2024-forecasts/


Rickards’ Five 2024 Forecasts

I have five forecasts for 2024 to help keep you ahead of the curve in positioning your investment portfolio.

My overall forecast is that 2024 will be more tumultuous and shocking than 2023. That may seem hard to credit.

With two major wars going on, an indicted former president and a demented current president, how can 2024 be more challenging than 2023?

Rest assured; it will be. I explain why below.

An Election of Dire Consequences

It’s a cliche to write that the next presidential election will be the “most important in our lifetimes.” Yet in 2024 that cliche will actually be true.

The divide between the two parties is probably greater than at any time in U.S. political history since the Civil War. The choice could not be more stark and the stakes could not be higher.

That’s why this election is so important.

First off, I don’t think that Joe Biden will be the Democratic nominee for president.

Biden’s problem is not just his age, but the fact that he actually is mentally and physically impaired. He’s simply not fit to be president, and everyone knows it even if Democratic operatives and media sycophants don’t want to mention it. But who will replace Biden?

The most likely replacements are Gavin Newsom, J.B. Pritzker, Gretchen Whitmer and Jennifer Granholm. All four were or are state governors. They’re all about the same ideologically; take your pick. Forget Kamala Harris; she’s simply too much of a liability.

The Republican Side

On the Republican side, there’s not a lot to say. Trump will be the nominee; no one can recall a non-incumbent with such a large lead in the polls.

He’s leading the pack by 55 points or more and is now even running ahead of Joe Biden in recent polls.

Meanwhile, Trump’s facing over 90 felony charges in four separate indictments in two state courts and two federal courts. Criminal indictments only increase Trump’s popularity because they are clearly motivated by politics.

A criminal conviction (likely in my view) will further solidify Trump’s base because of the blatant jury shopping, targeted prosecutions and absence of due process that Trump has had to endure.

The biggest curveball is that Trump may actually be behind bars on Election Day. That’s OK, there is no legal or other prohibition on electing an incarcerated convicted felon as president. Third-world, yes. Illegal, no.

This brings us to the third-party situation. There are many third-party candidates who will likely divide the Democrats. These include RFK Jr., Cornel West and Jill Stein. I wouldn’t rule out Sen. Joe Manchin from West Virginia, who’s announced he won’t seek reelection. If he runs for president, he’s likely to go on the No Labels party line.

I believe these third-party candidates will divide the Democratic vote, which I also believe will favor Trump. So that’s my first forecast — Trump will win back the presidency in 2024.

U.S., China and a Global Recession

Chinese economic growth is now in the low single digits (about 4% per year). That’s down from the double-digit growth of the 1994–2008 period.

China has had two failed “reopenings” (one after COVID in 2022, and one as the result of “stimulus” in 2023) and seems headed for a third. China gets a small boost from loose fiscal and monetary policy that rapidly fades because there is no real stimulus possible when a country is as heavily indebted as China.

The U.S. faces its own economic headwinds. The Federal Reserve has raised interest rates to 5.50% from zero in 20 months and reduced its balance sheet by over $1 trillion in the same period, an even tighter monetary policy than the one engineered by Paul Volcker from 1979–1981.

Fiscal policy is also tightening since the COVID handouts and student loan grace periods are over. Fiscal policy will get even tighter now that Republican deficit hawks have the upper hand in the House of Representatives.

The data showing the U.S. is heading to a recession is abundant. In fact, the U.S. may already be in recession. The indicators include inverted yield curves, rising commercial real estate defaults, declining industrial production, declining job creation and falling bank loans.

That leads me to my next forecast: China, the U.S. and Japan will all fall into recession in the coming months. The EU is already in recession. A rare global recession will be the result in 2024.

Ukraine

Russia is winning the war decisively. The West and Ukraine have shown no willingness to negotiate and there’s no reason for the Russians to negotiate because they’re winning.

With that in mind, it seems likely that Joe Biden will double-down on his losing bet.

The Russians don’t expect the war to be over until 2025. That gives Biden time to deliver F-16 fighter jets and more money and to help Ukraine with its flying drones and sea-drones that can attack Russian vessels and the Kerch Bridge.

Russia will certainly match that kind of escalation by shooting down the F-16s, increasing its cruise missile attacks on Ukrainian cities and destroying Ukraine’s energy infrastructure so that the country will lack electricity and heat this winter.

My forecast is that Russia will not de-escalate because they’re winning. Biden will not de-escalate because he’s senile, is surrounded by warmongers and has no reverse gear.

I do not expect escalation to the point of nuclear weapons, but the probability of that outcome is uncomfortably high and should not be dismissed.

Next is part two of this forecast…

Israel and Gaza

The Israeli-Hamas War has its own risks of escalation. As of now, fighting is mostly limited to northern Gaza adjacent to the Israeli border. Yet Israel faces an enemy 10 times more powerful than Hamas in the form of Hezbollah, which is located in Lebanon on Israel’s northern border, and which is heavily subsidized by Iran in terms of money, weapons and intelligence.

Hezbollah has launched some missile attacks from Lebanon on Israel’s northern border, but those have not been extensive. In addition to Hezbollah, the Houthi rebels in Yemen are firing missiles into Israel.

The Houthis are a direct Iranian proxy intended to threaten Saudi Arabia, but are equally capable of threatening Israel. If Hezbollah and Houthi attacks on Israel escalate, Israel will not limit their response to those two groups. They are likely to launch attacks on Iran itself, going to the root of the problem. At that point, Iran may fire missiles at Israel and close the Straits of Hormuz.

For now, the tensions have been reduced slightly. But if the escalation scenarios play out even in part, expect oil prices to go to $150 per barrel or higher. That will put the U.S. and Western Europe in a recession worse than 2008 and the earlier oil shock of 1974.

Don’t rule it out.

Banking Crisis Stage 2

In less than two months from early March to early May 2023, we saw the failures of Silvergate Bank, Silicon Valley Bank, Signature Bank, Credit Suisse and First Republic.

In response, the FDIC stepped in with the mother of all bailouts. Going forward, the issue is: Once you’ve guaranteed every deposit and agreed to finance every bond at par value, what’s left in your bag of tricks? What can you do in the next crisis that you haven’t already done — except nationalize the banks?

Investors are relaxed because they believe the banking crisis is over. That’s a huge mistake. History shows that major financial crises unfold in stages and have a quiet period between the initial stage and the critical stage.

My next forecast is that a bigger and more acute Stage 2 of the banking crisis is coming after the quiet period that has prevailed since June. This new crisis will be focused on about 20 banks with $200–900 billion in assets — the so-called midsized regional banks that are not too big to fail.

Crises of this sort can feed on themselves and cause losses that go far beyond the particular banks that may be most vulnerable. A new global financial crisis could be the result.

Markets

All of the above predictions involve turmoil either in domestic U.S. politics, international macroeconomics, ongoing wars or a potential financial meltdown starting in the banking system. With that as background, my market predictions are fairly straightforward:

2024 will be a difficult year for stocks. The market could decline at least 30% on a recession alone, and as much as 50% if either the Ukraine or Israeli war escalates, or a global financial crisis emerges.

The major sectors that will outperform even in a falling market are energy, defense, agriculture and mining.

2024 should be an excellent year for U.S. government securities. All maturities will produce decent yields and capital gains as interest rates decline going into a recession.

Basic commodities such as copper, iron ore, coal, non-precious metals and agricultural produce will generally decline as the recession unfolds. Gold and silver should perform well based on declining interest rates and a flight to quality.

Energy will be volatile. It will tend to go down based on economic weakness, but occasionally rally on geopolitical fears.

The investment choices are clear. It will be a bad year for stocks, a good year for Treasury securities and a down year for commodities, except for energy and gold. The winners will be Treasuries, gold, oil and King Dollar.

Put on your crash helmets for a wild ride in the coming year.

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Looks like the green light is flashing for everyone to get back into the stock market. Here's today's headline from Fed mouthpiece Nick Timiraos (below) ---> the Fed is 'penciling 3 rate cuts in 2024'. It doesn't get much clearer than that. Next stop for the S+P 500 in the near / mid term should be the all time high near 4800.

The RSI indicators are near term way overbought, but the upward momentum is huge right now. As they teach in 'chart school' -- price action ultimately takes precedence over TA signals. Fwiw, I figure 4800 would be the logical time for a pullback / consolidation. After that the market could continue to recover in 2024, barring any black swan events of the 'US bombs Iran' variety. My conclusion for now is 'don't fight the tape' and 'don't fight the Fed' -


>>> Fed Holds Rates Steady and Sees Cuts Next Year

Officials don’t rule out further hikes while penciling in three rate cuts in 2024


The Wall Street Journal

By Nick Timiraos

Dec. 13, 2023


https://www.wsj.com/news/author/nick-timiraos


WASHINGTON—The Federal Reserve held interest rates steady and signaled inflation had improved more rapidly than anticipated, opening the door to rate cuts next year.

Most officials penciled in three interest rate cuts for 2024 in projections released after their two-day meeting on Wednesday...


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>>> Short Sellers Who Won in Third-Quarter Stock Swoon Start Pulling Bets


Bloomberg

by Natalia Kniazhevich

11-1-23


https://www.msn.com/en-us/money/markets/short-sellers-who-won-in-third-quarter-stock-swoon-start-pulling-bets/ar-AA1jdJlK?ocid=ansmsnnews11&cvid=92aea4bd82c840e68a5672b5c5062935&ei=45


(Bloomberg) -- Short sellers who made a fortune during the third-quarter stock-market dive are starting to close those bets against the market as the seasonally strong months for equities arrive.

Total short interest in US and Canadian stocks dropped by nearly $66 billion at the end of October to $871 billion, according to financial data and technology firm S3 Partners. Investors backed off bearish bets across sectors with consumer discretionary, financials, health care and information technology notching some of the biggest declines.

“Short sellers have got an early Christmas present in the third quarter” Ihor Dusaniwsky, head of predictive analytics at S3 Partners said in a phone interview. From here, traders are not building up new positions “as they don’t want to lose what they made already.”

The S&P 500 Index sank 3.7% in the third quarter, punctuated by a 4.9% drop in September, while the tech-heavy Nasdaq 100 lost 3.1% in the third quarter, led by a 5.1% slide in September.

Both indexes continued to fall in October, albeit at a slower pace, with declines of more than 2% each for the month. But November is traditionally the second-strongest month of the year for stocks, so traders need to be disciplined, said Steve Sosnick, chief strategist at Interactive Brokers.

“Taking profits is a key part of that discipline,” Sosnick said. “But unless we get a meaningful reversal in the bond market, it’s hard to expect a big rally in stocks.”

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Per Timiraos --> no Fed hike next week -

>>< U.S. Inflation Accelerated in August

U.S. inflation accelerated in August due to a jump in gasoline costs, but underlying price pressures were likely mild enough to keep the Federal Reserve on track to hold interest rates steady next week.


https://www.wsj.com/news/author/nick-timiraos


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Looks like a Fed pause in Sept might be in the cards, based on Nick Timiraos' recent WSJ article (link below). Rickards says that Timiraos has been anointed by the Fed as their unofficial mouthpiece for providing current Fed guidance to Wall St. He has always been accurate since the info comes directly from the Fed. Just reading his headlines is enough to get the gist of Fed policy -


>>> Cooler July Inflation Opens Door to Fed Pause on Rates <<<

https://www.wsj.com/news/author/nick-timiraos



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>>> Hedge funds rush to unwind bearish stock positions


Reuters

July 14, 2023

By Carolina Mandl and Nell Mackenzie


https://finance.yahoo.com/news/hedge-funds-rush-unwind-bearish-194851877.html


NEW YORK/LONDON (Reuters) - Global hedge funds rushed to unwind bets that U.S.-listed stocks will fall, as a persistent rally threatens their performance, JPMorgan Chase and Goldman Sachs told clients in reports.

"For hedge funds, shorts have been a challenge since early June especially," JPMorgan said, adding the unwinding of short positions got "extreme" in recent days.

Goldman Sachs said in a note on Friday short covering in the so-called U.S. macro products, which include equity index and exchanged-traded funds, reached the largest amount seen since November 2020.

A U.S. bull market has caught portfolio managers off guard, as they positioned earlier in the year for an economic downturn amid interest rates hikes, sticky inflation and geopolitical tension. Such short covering could, in turn, give fuel to the equity rally, further complicating the picture for remaining short-sellers.

The performance of the main U.S. indexes, however, has challenged their gloomy positions. The Nasdaq skyrocketed over 42% this year and the S&P 500 surged over 17%, while a basket of the most-shorted U.S. stocks is up 40% since early May, JPMorgan said.

The outcome for hedge funds has not been good. Overall, hedge funds went up 3.45% in the first half of the year, lagging the main stock indexes.

Amid the rally's persistence, investor sentiment has turned more positive, JPMorgan added in its note dated July 13.

Net buying, which excludes stocks sold, reached its largest level since October last year, according to Goldman Sachs. The move, however, was mainly driven by investors buying shares to cover their short positions.

Still, hedge funds also shorted more single stocks, mainly in sectors like staples, communication services and info tech, according to Goldman Sachs.

Goldman Sachs and JPMorgan run two of the world's biggest prime brokerages, a banking sector provides lending and trading services to investors and is able to see how large hedge funds and asset managers are moving.

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>>> Powell Haunted by Repo Crisis as Fed Aims to Cut Balance Sheet


Bloomberg

by Liz Capo McCormick, Alexandra Harris and Jonnelle Marte

July 9, 2023


https://finance.yahoo.com/news/powell-haunted-repo-crisis-fed-190001824.html


(Bloomberg) -- Tucked away in hours of congressional testimony by Federal Reserve Chair Jerome Powell last month was an admission that the central bank was blindsided by the impact of shrinking its balance sheet four years ago.

While Powell assured lawmakers the Fed is committed to avoiding a repeat of 2019 — when the repo market, a key part of US financial plumbing, seized up — Wall Street economists and strategists caution that quantitative tightening remains complex and hard to predict. Known as QT, it involves letting Fed bond holdings mature without replacement, draining cash from the financial system.

In the coming months, the full brunt of the Fed’s current QT program is set to be felt. How it proceeds, and how the Fed handles the process, could shape its political latitude to keep using its balance sheet as a key tool in the future, amid Republican angst that was on display in Powell’s June 21-22 hearings.

“We didn’t see it coming,” Powell acknowledged at the House Financial Services Committee June 21 when referencing the sudden problems that emerged in 2019 and forced the central bank into steps it didn’t want. The advantage now is “we have experience,” he said.

The Fed is currently shedding its bond holdings at an annual pace of roughly $1 trillion, much faster than in 2019 but from a much bigger base. Powell told lawmakers he’s “very conscious” of the importance of not just inflating the balance sheet during each easing cycle and leaving it enlarged.

So far, Powell and market participants agree, things have been going smoothly. There are still more than $3.2 trillion of bank reserves parked at the Fed, and no indication that that gauge of liquidity has shrunk to a level that would cause problems in money markets as happened in 2019. Analysts estimate — with low conviction — the banking system needs at least $2.5 trillion to function smoothly.

“You don’t want to find yourself, as we did a few years back, suddenly finding that reserves were scarce,” Powell said last month. This time, the goal is to slow QT down at some point, ending the bond-portfolio runoff when reserves are still “abundant,” with an added buffer “so we don’t accidentally run into reserve scarcity.”

One reason things are going well so far is that there’s another big element of liquidity on the Fed’s balance sheet — the reverse repo facility. Known as RRP, money-market funds have used it to park cash. And that account stands at more than $1.8 trillion.

Full Impact

Another reason is that the overall Fed balance sheet has only shrunk by a fraction of the amount it surged during the pandemic. The Fed’s liquidity injections during the spring — to help address regional bank troubles — expanded the balance sheet. The Treasury was also limiting sales of bills — which remove liquidity — while it was constrained by the debt-limit standoff.

Those two dynamics have largely ended now, however.

“Things will start tightening on the liquidity side,” predicted Raghuram Rajan, the former International Monetary Fund chief economist and Indian central bank governor. “Then we will see the full consequences” of QT, the University of Chicago economist said last week on Bloomberg Television.

Even then, a number of observers see things going relatively smoothly. That’s because QT could end up mainly draining RRP. Indeed, it’s already receded to the lowest level since May 2022.

Powell’s Preference

The RRP can shrink “dramatically” without “particularly important macroeconomic effects,” Powell explained last month. And he told a Senate panel that “that’s what we would have hoped to see, rather than taking reserves out of the system.”

With the Treasury in the middle of ramping up its own cash reserve by as much as $1 trillion, market participants will be closely monitoring what gets drained as that goes ahead.

Bank of America Corp. strategists, led by Mark Cabana, estimate that 90% of the Treasury’s issuance will be funded by the RRP, as money-market funds shift from that Fed facility to investing in higher-yielding T-bills.

Others aren’t so sure.

Others’ Doubts

RBC Capital Markets analysis indicates that, so far, about 60% of the Treasury’s sales are coming from draining the RRP. Even that pace is faster than Blake Gwinn and Izaac Brook expected, and those strategists see the rate slipping to 45% to 50%. If households and companies keep pouring cash into money-market funds, they say, that could leave them still needing to park large amounts in the RRP, slowing its decline.

Gennadiy Goldberg, head of US rates strategy at TD Securities Inc., said it’s unclear how the Treasury’s bill sales will be funded. And that in turn leaves the impact of the Fed’s QT a question mark.

“Saying everything is OK is like calling the game after the first quarter,” he said. “Last time the Fed hit the wall at 60 miles an hour as they weren’t expecting reserve scarcity to be there — and the risk now again bears watching.”

There are other potential issues, to boot.

Dina Marchioni, director of money markets at the New York Fed, said at a symposium last month that staff are watching for the potential to money-market funds to start buying slightly longer-dated assets — something they might do to lock in yields for longer as the Fed approaches the end of interest-rate hikes.

Tools Available

That could put upward pressure on very short-term rates, sending them above the Fed’s target rate, Marchioni indicated.

The central bank does have policy tools it can use to address challenges, including a standing repo facility that offers cash overnight in exchange for securities, and the recently established Bank Term Funding Program.

“The risk scenario is that they do too much, too fast and then disrupt the flow of credit to the economy by so much that it tips things over to recession,” said Seth Carpenter, a former Treasury official who is now global chief economist at Morgan Stanley. But “that is not at all our base case,” he added, expecting QT to last well into next year.

Still, even Fed staff — as revealed in minutes of the most recent policy meeting — last month viewed with “uncertainty” their expectation for bank reserves to remain “abundant” by year-end.

“The biggest unknown at the moment is what is the lowest comfortable level of reserves in the financial system,” said TD’s Goldberg. “We just don’t know.”

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>>> It’s Getting a Lot Harder to Chase the Stock Rally From Here On


Bloomberg

by Jan-Patrick Barnert and Ksenia Galouchko

July 2, 2023


https://finance.yahoo.com/news/getting-lot-harder-chase-stock-130000368.html


(Bloomberg) — Don’t get too greedy.

That’s the chorus from many investors who are entering the second half of the year with double-digit stock gains already under their belts.

Global equities have decoupled from a worsening economic backdrop after rising about 13% in 2023, prompting warnings from some of the world’s top money managers that chasing the rally from here on is a risky move. Growing corporate profit warnings are also driving home the message.

“Resilience now is sowing the seeds for fragility down the line,” said Andrew McCaffery, global chief investment officer at Fidelity International. “The ‘best-flagged recession in history’ still isn’t upon us. But that recession will come when the lagged effects of policies eventually take hold.”

Increasingly hawkish central-bank rhetoric and a slew of profit warnings are denting optimism of a soft economic landing, after an action-packed first half that included a US regional banking crisis and a $5 trillion tech bounce powered by the hype around artificial intelligence.

“There’s maybe a nasty surprise in store for stock markets and credit markets in the second half of the year,” Joseph Little, global chief strategist at HSBC Asset Management, said by phone. That could stem from a “combination of the weaker fundamentals set against what is currently expected by market participants, which looks like an incredibly soft landing,” he added.

FedEx Corp. to Siemens Energy AG and European chemical firms have cut or withdrawn outlooks, and there may be more woe in store as the earnings season kicks off in earnest in two weeks. Analysts are slashing profit forecasts globally, following a period of surprising resilience earlier this year.

“I think for many sectors and many industries, this might be the last good quarter,” Luke Newman, a fund manager at Janus Henderson Investors, said by phone, noting that companies may struggle more to pass on cost increases to consumers now, compared with a year ago.

Rising interest rates are likely to remain a key theme for the rest of the year. Expectations of a Federal Reserve rate cut have now been pushed out to 2024, while European Central Bank officials have said the hiking cycle is unlikely to end anytime soon.

Almost 99% respondents in a Deutsche Bank AG survey of 400 market professionals said higher rates will likely lead to more global “accidents”, with most of them expecting the moves to bring fresh strain to financial markets.

That spells trouble for the rate-sensitive tech sector, in particular, where valuations look rich after an AI-fueled surge. Investors and strategists are also concerned the concentration of this year’s market rally in a handful of megacap tech stocks means that bad news for the group could exacerbate declines for equity gauges overall.

“There’s been an overreaction in the short run” in tech stocks on AI hype, Lode Devlaminck, managing director for global equities at Dupont Capital Management, said by phone. “I do think AI is a game changer for a lot of companies in terms of productivity gains. But looking forward, if we want the market to continue or to sustain the rally, it actually needs to broaden out because it’s too narrow right now.”

Still, worsening conditions don’t necessarily mean stocks will fully reverse their 2023 gains.

Historically, barring the Great Depression in 1929, the S&P 500 has had positive returns every single year when it has gained 10% or more in the first half. Thomas Schuessler, portfolio manager of DWS’s €21 billion dividend fund, sees no good reason to fully hold off from investing in stocks.

“However, I don’t think that we can project the gains of the first six months onto the second half of the year,” he adds.

One factor could exacerbate any moves to the downside in the second half of the year: low trading volume.

While US equities entered bull territory in June, the run came amid thin market participation. The S&P 500 Composite Turnover Index shows a drop in volume every month in 2023 on a year-on-year basis.

Along with the seasonal summer lull, that could accelerate a market correction if traders unwind bullish bets. Patrick Grewe, portfolio manager at Van Grunsteyn, expects a correction in overvalued stocks as rates rise.

“A rock-solid conservative stance should also be maintained in the second half of the year,” he said. “In particular, trying to catch up with the market involves immense risks.”

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>>> PIMCO CIO says preparing for 'harder landing' for global economy, Financial Times reports


Reuters

July 2, 2023


https://www.reuters.com/business/finance/pimco-cio-says-preparing-harder-landing-global-economy-ft-2023-07-02/


July 2 (Reuters) - Pacific Investment Management Co (PIMCO) is preparing for a "harder landing" while top central bank chiefs prepare to continue their campaign of interest rate rises, Daniel Ivascyn, chief investment officer at the U.S. bond giant, told the Financial Times in an interview published on Sunday.

"The more tightening that people feel motivated to do, the more uncertainty around these lags and the greater risk to more extreme economic outlooks," Ivascyn told the FT, noting that when rates have risen in the past, a lag of five or six quarters for the impact to be felt has been "the norm".

The market is "too confident in the quality of central bank decisions", he told the FT.

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>>> Trading legend Art Cashin is skeptical of the sentiment-driven rally and warns a 'bump in the road could turn out to be a landmine'


Business Insider

by Filip De Mott

Fri, June 30, 2023


https://finance.yahoo.com/news/trading-legend-art-cashin-skeptical-014530569.html


The current market upswing is largely sentiment driven, Wall Street trading legend Art Cashin said.

"Short of going absolutely parabolic, this has been some dramatic, pyrotechnic run on this rally."

But it will mean that small, future challenges could have outsized market reactions.

Legendary trader Art Cashin is skeptical of the stock market rally and said a hiccup could quickly unravel investors' optimism.

The warning comes as the market wraps up a strong second quarter that extended year-to-date gains. In the first haf of 2023, the Nasdaq is up 30%, and the S&P 500 is up 15.5%.

"I can't overstate how strongly sentiment has taken over," Cashin, UBS director of floor operations, told CNBC on Friday, pointing to fear of missing out. "I think, short of going absolutely parabolic, this has been some dramatic, pyrotechnic run on this rally."

Asked if there's an "unknown unknown" that could undo the rally in the second half of the year, he said that's possible.

Because the rally has relied so heavily on sentiment instead of fundamentals, he suggested that it's fragile.

"Sentiment is so great that a bump in the road could turn out to be a landmine," Cashin said, later adding, "so far the trend is going. Am I skeptical? Yes."

This year's stock surge has been led by the tech sector as hype around artificial intelligence has lifted names like AI chip leader Nvidia. Mainstays like Apple have also rallied, with the iPhone maker reaching a $3 trillion market capitalization on Friday.

Meanwhile, a slew of upbeat economic data has raised hopes that the US economy could avoid a recession. However, that could also force the Federal Reserve to stay hawkish, and officials have said more rate hikes are coming to get inflation back to their 2% target.

Though a rate hike was skipped in June, Chairman Jerome Powell predicted 2% inflation is unreachable until at least 2025.

Yet, higher rates are "not really in anybody's plan," Cashin warned. "If they're going to move significantly higher, everything could change. You could go to negative payrolls and whatever."

Still, he acknowledged, "But for now, the sun is shining, the Roman candles are bursting, and everybody's happy."

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>>> US consumer confidence races to 17-month high; housing market regaining strength


Reuters

By Lucia Mutikani

June 27, 2023


https://www.msn.com/en-us/money/realestate/us-consumer-confidence-races-to-17-month-high-housing-market-regaining-strength/ar-AA1d7ndE


WASHINGTON (Reuters) - U.S. consumer confidence increased in June to the highest level in nearly 1-1/2 years amid renewed labor market optimism, while business spending appeared to hold up in May, indicating the economy remained on solid footing despite fears of a recession.

Hopes that the economy could avoid a downturn in the near-term were also bolstered by other reports on Tuesday signaling a housing market revival was likely underway, with new home sales racing to a 15-month high in May and monthly house prices rising again in April.

The upbeat data, however, suggested the Federal Reserve will likely have to continue raising interest rates to slow demand in the overall economy. The U.S. central bank, which has raised its policy rate by 500 basis points since March 2022, signaled this month that two additional rate hikes were warranted this year.

"The U.S. economy continues to steadily defy expectations and the fact that it is doing so without lots of hoopla is a good thing," said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto.

The Conference Board said its consumer confidence index rose to 109.7 this month, the highest reading since January 2022, from 102.5 in May. Economists polled by Reuters had expected the index to climb to 104.0.

Consumers under the age of 35, and those with an annual income of more than $35,000 were the main drivers of confidence this month. Consumers, however, continued to expect a recession at some point over the next six to 12 months.

But they grew more upbeat on the labor market, with the share viewing jobs as "plentiful" rising and the proportion of those saying jobs were "hard to get" falling.

The survey's so-called labor market differential, derived from data on respondents' views on whether jobs are plentiful or hard to get, rose to 34.4 from 30.7 in May, a sign labor market conditions remain tight despite first-time applications for state unemployment benefits hovering at more than 1-1/2-year highs. This measure correlates to the unemployment rate in the Labor Department's closely followed employment report.

Though income expectations eased a bit, consumers were generally optimistic about family finances.

"This might reflect consumers' belief that labor market conditions will remain favorable and that there will be further declines in inflation ahead," said Dana Peterson, chief economist at The Conference Board in Washington.

Consumers' 12-month inflation expectations dipped to 6.0%, the lowest reading since December 2020, from 6.1% last month. The improvement in confidence mirrored the University of Michigan's sentiment survey.

But consumers' buying plans softened, with fewer households intending to purchase motor vehicles, major appliances and houses over the next six months. Vacation was also not on many consumers' minds. But economists cautioned there was no strong correlation between buying plans and consumer spending.

U.S. stocks were trading higher. The dollar slipped against a basket of currencies. U.S. Treasury prices fell.

FLOOR FOR HOUSING

The run of positive economic news was extended by a separate report from the Commerce Department showing orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, increased 0.7% in May. The rise in orders for these so-called core capital goods handily beat economists' expectations for them to be unchanged.

Though a downward revision to April's increase to 0.6% from 1.3% took some of the shine from the data, business spending was holding up despite the pain from higher borrowing costs. There were notable increases in orders for electrical equipment, appliances and components as well as machinery.

Shipments of core capital goods gained 0.2% in May after climbing 0.4% in April. Nondefense capital goods shipments including aircraft surged 3.4%. These feed into the calculation of equipment spending in the gross domestic product measurement.

Business spending on equipment has declined for two straight quarters, the first back-to-back decline since 2020.

"We may not be out of the woods yet, but back-to-back gains in core capital goods orders more broadly point to a potential bottoming out in spending and upside for second-quarter equipment spending," said Tim Quinlan, a senior economist at Wells Fargo in Charlotte, North Carolina.

The housing market appears to have found a floor and could even be recovering. A third report from the Commerce Department showed new home sales jumped 12.2% to a seasonally adjusted annual rate of 763,000 units last month, the highest level since February 2022, benefiting from a dearth of previously owned homes available for sale.

Economists had forecast new home sales, which account for a small share of U.S. home sales, slipping to a rate of 675,000 units. Sales shot up 20.0% on a year-on-year basis in May. New home sales are counted at the signing of a contract, making them a leading indicator of the housing market.

While new home sales can be volatile on a month-to-month basis, they added to data last week showing homebuilder confidence positive in June for the first time in 11 months. Housing starts surged in May and home resales edged up.

A fourth report from the Federal Housing Finance Agency showed monthly house prices rising 0.7% in April after gaining 0.5% in March. Prices increased 3.1% in the 12 months through April after advancing 3.7% in March.

"Strength in housing suggests risks for the Fed's goal of a return to 2% inflation over the medium term," said Veronica Clark, an economist at Citigroup in New York. "Housing strength over the summer also supports our base case of further rate hikes sooner rather than later."

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>>> A recession indicator that predicted every downturn since 1969 started flashing months ago—and a Wall Street veteran warns it always works on a delay


Fortune

by Will Daniel

June 27, 2023


https://finance.yahoo.com/news/recession-indicator-predicted-every-downturn-173231735.html


Wall Street analysts and investment strategists love to use “recession indicators.” These simple statistics that serve as evidence of (potential) impending economic disaster can be invaluable tools for managing risk. Just look at one of the most famous of them all: the yield curve. Since 1969, a yield curve inversion has preceded every U.S. recession.

The yield curve is a graphical representation of the relationship between the yields of related bonds—most commonly the U.S. 10-year Treasury and two-year Treasury. Typically, shorter-term bonds have lower yields than longer-term bonds because investors are taking more risk by locking up their money for longer. This relationship is represented by an upward sloping curve. But sometimes that yield curve can invert, meaning long-term bond yields drop below short-term bond yields.

Megan Horneman, chief investment officer at Verdence Capital Advisors, warned Monday that even after nearly a year, investors shouldn’t be “complacent” about this “historical recession indicator.”

“Historically, after the yield curve inverts, it takes ~15 months for the economy to officially enter a recession,” the Wall Street veteran explained in her Weekly Investment Insights research note on Monday. “Applying this same time frame to the current inversion (roughly one year ago), the economy could enter a recession in October of this year.”

Horneman, who spent more than a decade at Deutsche Bank before moving to Verdence, pointed to the yield curve inversion and “many other economic signals” as evidence that a recession in the second half of this year is now all but “unavoidable.”

The thing is, although every recession since 1969 has been preceded by a yield curve inversion, not every yield curve inversion has preceded a recession. The past six of them have all correctly predicted economic downturns, with a crucial exception: A brief inversion in March 2022 after Russia’s invasion of Ukraine spooked investors.

So what is the yield curve, why is it so scary, and what does Horneman see in the signals?

Reading the tea leaves

An inverted yield curve typically indicates that investors are moving money away from short-term bonds and into long-term bonds because they expect that a near-term decline in economic activity will force the Federal Reserve to cut interest rates. Essentially, it’s a sign that the market is becoming increasingly pessimistic about the economy’s prospects. And that’s exactly what happened on July 5, 2022, the Treasury yield curve (the difference between the yield of a 10-year Treasury and a two-year Treasury) inverted—and it’s remained that way ever since.

In addition to this signal of weak market confidence, Horneman noted that the Conference Board’s Leading Economic Index (LEI)—which uses data including building permits, average weekly hours worked, manufacturers’ new orders, and more to get a picture of the health of the economy—sank to its lowest level since July 2020 in May and has now fallen for 14 straight months.

On top of that, despite year-over-year inflation falling from its four-decade high of 9.1% in June 2022 to just 4% this May, Federal Reserve Chairman Jerome Powell delivered hawkish comments during his semiannual testimony on Capitol Hill last week, promising to continue his inflation fight. “Inflation pressures continue to run high, and the process of getting inflation back down to 2% has a long way to go,” he said, referencing the central bank’s 2% inflation target.

Horneman said the comments are evidence of two more rate hikes on the way this year, and argued “history is not on our side” when it comes to avoiding a recession during a period of rising interest rates. “History tells us that most Fed tightening cycles do not end in a soft landing. As can be seen in the table, over the past 11 tightening cycles, all but three resulted in an economic recession,” she explained in a June 20 note.

A warning sign for markets?

Recessions are never good news for stocks. They slow economic growth and increase unemployment, which hurts corporate earnings. And Horneman warned Monday that, on top of that, this year’s market rally was an anomaly compared with the historical trend, which could mean there’s “additional downside” ahead.

Historically, after the yield curve falls to its lowest level, the S&P 500 has posted an average gain of just 4.4% in the following 12 months. But the blue-chip index is already up nearly 9% in just the few months since the yield curve reached its lowest level (–108 basis points) on March 8.

“Equity valuations continue to rise on the optimism that the Fed may be near the end of their tightening cycle,” Horneman wrote. “However, it is also important to remember that equity markets historically do not bottom until we are within a recession.”

The CIO went on to argue that the first half stock market rally this year is not “sustainable” and said she expects to see a “10% to 15% decline when investors become realistic with the interest rate, economic and earnings environment.”

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S+P 500 trading strategy -

Chart support levels -

1st Support - 4305 (Aug '22 high)

2nd Support - 4275 (early June trading range) (or 4250-4300 zone)

Key Support - 4200 (the rising 50 MA, and is also the top of the ascending triangle which formed over last 6 mos, from which the recent breakout started)


Strategy - I'm hoping for a re-test of the 50 MA in the weeks ahead. So a possible re-entry for the Flex portion of the stock allocation. Alternately, may use a gradual averaging in strategy once the S+P 500 drops into the 4200-4275 zone. In a few week the rising 50 MA should be in the 4250 area. The 50 MA is the key target to watch in the near/mid term.

All IMHO :o)



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>>> Supreme Court Student Loan Ruling May Raise U.S. Recession Risk


Investor's Business Daily

by JED GRAHAM

06/23/2023


The upcoming Supreme Court ruling on the constitutionality of President Biden's student loan forgiveness may be unprecedented in its near-immediate impact on consumer finances. If the conservative court strikes down the $400-billion giveaway, the U.S. economy could face a close brush with recession.

The stakes for the ruling in Biden v. Nebraska, which may be released on Tuesday, are heightened by the fast-approaching end to the moratorium on federal student loan payments that's been in place since April 2020.

Student Loan Payments To Cut Consumer Spending

Deutsche Bank estimates that a resumption of student loan payments will cut consumer spending by up to $14 billion per month. That amounts to $305 per borrower, analysts Gabriella Carbone and Krisztina Katai wrote on June 21. Interest will begin accumulating on student debt on Sept. 1, with first payments due in October.

Goldman Sachs estimates that personal consumption spending could face an average hit of six-tenths of a percentage point in the last four months of 2023. However, if the Supreme Court allows Biden's student loan forgiveness plan to stand, the drag on spending would be cut in half.

The White House has said that its student-loan forgiveness program would fully erase student debt for about 20 million borrowers. About 60% of the 43 million eligible for debt reduction have received Pell Grants, making them eligible to have $20,000 in student debt erased. Other borrowers could have up to $10,000 of their student debt canceled. Eligibility extends to those earning up to $125,000 per year, or $250,000 for couples.

Supreme Court Student Loan Case

The Supreme Court ruling will hinge on two questions: Did Biden overstep his authority and, if so, do Republican-led states have standing to sue? Recent rulings by the conservative-dominated court show little patience for government agencies adopting consequential policies without the explicit consent of Congress. That suggests the question of standing is paramount.

The plaintiffs argued that Missouri finances could suffer if state-created student-loan servicer MOHELA loses revenue due to debt cancellation. However, supporting evidence for that claim appears questionable.

Student Loan Payment Holiday Impact

A New York Fed study estimated that student loan borrowers saw $195 billion worth of payments waived in the first two years of the moratorium. That sum has now likely grown to around $300 billion.

The student loan payment holiday not only allowed borrowers to spend more freely but enabled them to take on other debt. Yet now, even before a resumption of student loan payments, Deutsche Bank notes a "sharp rise in credit card delinquency rates," from 1.5% in the third quarter of 2023 to 2.4% in the latest quarter. Delinquencies remain well below the peak of around 6% triggered by the 2008 financial crisis.

The student loan holiday is the last major Covid-era government support for household finances. Stimulus checks, inflated jobless benefits and expanded child tax credits are long gone. In the first quarter, emergency SNAP (Supplemental Nutrition Assistance Program) benefits expired. That amounted to a hit of at least $95 per month for eligible households, or about $3 billion per month. Medicaid income limits, suspended at the start of the Covid pandemic, are now returning. That could knock up to 17 million people out of the program over the next year, leaving them to find more costly insurance coverage, a Kaiser Family Foundation analysis finds..

Retail Sales Stall

Even before student loan payments restart, consumer spending is already running out of steam. Retail sales slipped 0.1% in the three months through May vs. the prior three months, on a seasonally adjusted basis.

Spending on services, apart from an uptick on health care, also appears to have slowed. "The recent flattening in airline passenger numbers and hotel occupancy, and declining diner numbers at restaurants, suggest that a degree of caution is creeping into consumers' spending decisions," wrote Ian Shepherdson of Pantheon Macroeconomics.

Consumer caution, even more than a resumption of student loan payments, is the real U.S. recession risk. Savings as a percentage of disposable income bottomed at 2.7% last June, rising to 4.1% in April. But the savings rate is still less than half of its 8%-9% range ahead of the pandemic. A return to pre-pandemic levels could amount to an annual drag on spending of around $800 billion per year.

Wall Street economists have been cutting odds of a recession lately, and the Federal Reserve seems to agree. New projections released this month showed the U.S. economy growing 1% this year, up from a 0.4% forecast in March. The Fed expects similarly tepid growth in 2024. Yet the Fed has signaled that it's not done hiking interest rates as it works to bring down inflation. Policymakers expect the jobless rate to reach 4.1% this year and 4.5% in 2024, which may add to consumer caution.

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>>> Powell: 'Nearly all' Fed members expect to raise rates again this year


Yahoo Finance

by Jennifer Schonberger

June 21, 2023


https://finance.yahoo.com/news/powell-nearly-all-fed-members-expect-to-raise-rates-again-this-year-123006616.html


Federal Reserve Chair Jerome Powell intends to tell lawmakers that nearly all Fed officials expect to raise interest rates this year after the central bank opted to take a breather last week at its June policy meeting.

"Nearly all FOMC participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year," said Powell in his prepared remarks released before the start of a House Financial Services Committee hearing Wednesday.

"But at last week’s meeting, considering how far and how fast we have moved, we judged it prudent to hold the target range steady to allow the Committee to assess additional information and its implications for monetary policy."

Powell will appear today before the House and Thursday before a Senate committee as part of his semiannual two-day testimony to Congress.

Powell also is prepared Wednesday to address with lawmakers the bank failures that happened in the spring, including the fall of Silicon Valley Bank. The chairman reiterated that the banking system remains “sound and resilient,” and reiterated that the central bank is exploring strengthening rules.

"The recent bank failures, including the failure of Silicon Valley Bank, and the resulting banking stress have highlighted the importance of ensuring we have the appropriate rules and supervisory practices for banks of this size," said Powell.

Powell, according to his prepared remarks, said inflation is still running high even though it’s moderated since the middle of last year. He also said there are signs the job market is coming into better balance, pointing to an increase in labor force participation, easing in wage growth and drop in job vacancies.

Labor demand, however, still substantially exceeds the supply of available workers even though the jobs-to-workers gap has narrowed.

"The process of getting inflation back down to 2 percent has a long way to go," said Powell. "It will take time, however, for the full effects of monetary restraint to be realized, especially on inflation."

Powell reiterated that the Fed will make decisions on interest rates meeting by meeting based on the data. Officials will be able to evaluate another jobs report, an inflation report and a series of bank earnings between now and the next policy meeting at the end of July.

Powell’s comments come after the central bank decided to hold off raising rates at its policy meeting last week, but raised their interest rate forecasts for this year, signaling rates could rise to as high as 5.6%. That implied two additional rate hikes are likely this year. Three officials see rates rising closer to 6%.

Powell said last week that now that the Fed is closer to the peak rate the central bank doesn't have to move as quickly as it did over the last year. The Fed can afford to moderate the pace of rate hikes to give the economy more time to adapt and make better decisions on interest rates.

Powell said last week the committee did not make a decision about what will happen at the next meeting nor did members talk about adopting a strategy of hiking every other meeting.

While the Fed chair said July would be a live meeting, he didn’t tip his hand. The markets are currently pricing in a nearly 80% chance of a rate hike in July.

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Interesting perspectives from Ed Dowd. In addition to 10 years at Blackrock, Dowd is also co-manager of the RFK Jr campaign -

>>> Washington may be looking at another fiscal crisis: a government shutdown.


MarketWatch

June 17, 2023

By Robert Schroeder


https://www.marketwatch.com/story/government-shutdown-fears-are-growing-heres-what-to-watch-and-when-to-expect-trouble-de0f245


‘We have to be serious about spending,’ says House Republican

Fresh off the debt-ceiling showdown, Washington may be looking at another fiscal crisis: a government shutdown.

At issue is a decision by House Republicans to write spending bills below the levels set in the recent deal that resolved the debt-ceiling crisis. Such bills, which fund various government operations, must be approved before the start of fiscal 2024 on Oct. 1. Without passage, Americans can expect another round of interrupted services, shuttered national parks and furloughed federal workers.

“If Congress does not pass all 12 appropriations bills by the start of FY24 on October 1st, there’s a chance that a government shutdown could result, just in time to commemorate the 10-year anniversary of the October 2013 shutdown, which occurred under a Republican House, Democratic Senate, and Democratic White House,” said Beacon Policy Advisors in a note.

Greg Valliere, chief U.S. policy strategist at AGF Investments, wrote that a stalemate between the House and Senate “could easily lead to a government shutdown as the new fiscal year begins on Oct. 1, and key spending provisions — defense and health care in particular — could stall in early October.”

The debt-ceiling legislation negotiated between House Speaker Kevin McCarthy and President Joe Biden set spending levels over the next two years, keeping nonmilitary spending for 2024 the same as 2023 levels. But House Republicans this week adopted spending targets for the coming fiscal year at levels below the McCarthy-Biden agreement.

Hardline House conservatives’ aims could set a collision course with the Democratic-controlled Senate, as well as further turn up pressure on McCarthy from his right.

“I’m not afraid of shutdowns,” Rep. Byron Donalds, a Florida Republican, told Punchbowl News. “American life doesn’t halt because government offices are closed…We have to be serious about spending.”

Beacon said preventing a shutdown on Oct. 1 would require lawmakers to agree on a stopgap budget known as a continuing resolution to keep the government open. But even such a solution could be fraught, they noted.

“Traditionally, CRs are passed at the previous year’s funding level, but it’s unclear if the right flank of…McCarthy’s (R-CA) conference would go along with a CR at FY23 levels.”

Historical data has shown that extended federal government shutdowns actually overlapped with bigger gains for stocks. Stocks climbed almost 2.9% on average when closures lasted for 15 or more days, as MarketWatch has written.

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>>> Why the chances of a government shutdown this fall are already on the rise


Yahoo Finance

Ben Werschkul

June 17, 2023


https://finance.yahoo.com/news/why-the-chances-of-a-government-shutdown-this-fall-are-already-on-the-rise-114911947.html


If anyone thought that the recent debt ceiling deal would mean any sort of reprieve from government spending brinkmanship, a deal cut this week by Kevin McCarthy has disabused those hopes.

To try and move past a rebellion among his most conservative members, McCarthy agreed to a plan whereby the House will propose additional spending cuts in the months ahead during budget talks. These cuts would be in addition to those agreed upon in the debt-ceiling deal Congress approved earlier this month.

The move all but guarantees that partisan spending fights will continue to be Capitol Hill’s main output in 2023, with Democrats immediately rejecting the idea and pledging to block it.

The months of fighting to come could have a host of consequences for a still fragile US economy even though a government default is now off the table until 2025.

The chaos could be destabilizing to markets; both a possible government shutdown and mandatory spending cuts are waiting at the end of the road if the gridlock continues into the fall and winter.

During a tense hearing this week, Rep. Rosa DeLauro (D-CT) said the recently enacted debt ceiling deal provided "a path to funding the United States government on time” and with minimal drama. But she quickly added that the path appears to be gone now, saying if McCarthy persists and "we disregard the law of the land, we all but guarantee a shutdown in October."

Here are some of the major milestones to watch in the months ahead and some of the possible risks to the economy.

Phase 1: A messy appropriations process this summer

Much of the early focus will be on the House Appropriations Committee, led by Chairwoman Kay Granger (R-TX).

Her committee will be charged with passing 12 different bills in the months ahead to set spending across an array of government operations like agriculture, education, homeland security and many more. This process - which was agreed to as part of the debt ceiling deal - is the key first step in the overall budget talks.

The issue is that McCarthy’s agreement means those House bills are now set to be considered at a lower level based on fiscal year 2022 spending. The result is that House Republicans are now looking for about $120 billion in additional cuts to government programs beyond those that were agreed to in the debt ceiling deal.

Granger has said the Republican move is entirely legitimate and that the debt ceiling deal simply set “a ceiling, not a floor” on spending levels as Democrats on the panel like DeLauro have howled in protest.

The Senate Appropriations Committee is led by Sen. Patty Murray (D-WA). It and the House committee will proceed in parallel hearings this summer to put forth their own proposals at spending levels agreed to in the deal, setting up for a clash in the fall as both sides try to iron out the differences.

"The financial markets will have to watch this one," wrote Greg Valliere, the chief U.S. Policy Strategist at AGF Investments, in a note to clients this week of the drama to come.

For his part, Speaker McCarthy has brushed aside the chances of permanent gridlock, telling reporters this week "you’ve got to be more positive."

Phase 2: A possible government shutdown in the fall

The issue for plenty of observers is a possible government shutdown that could come on Oct. 1 without a bipartisan agreement. If the differences in approach between the House and Senate persist, the government could be faced with once again closing non-essential services this fall.

"Shutdowns often pressure equity markets, but only temporarily, as markets typically recover as soon as Washington emits signals of a deal to reopen the government," notes Brian Gardner, Stifel Chief Washington Policy Strategist, in his own note this week.

The political risk here, however, "is not currently priced into the markets" and could become much more front and center to investors and the economy in the fall if there are no signs of compromise on the horizon, he added.

In addition to a shutdown itself, there are an array of fiscal deadlines in the coming months and other important items on Congress’s do list - from reauthorizing the FAA to the farm bill - that could get bottled up in a budget standoff. That chaos could spill into the broader economy.

Phase 3: Possible mandatory spending cuts on Jan. 1

If the gridlock remains unresolved this fall, attention will turn to an even steeper fiscal cliff awaiting Washington on Jan. 1, 2024.

The debt ceiling deal stipulates that if there is no overall budget deal in place by next year, discretionary government spending will be cut by 1%. Significantly, the cuts would be across the board and not only impact social programs but also hit defense spending as well.

Cuts of that type could be felt widely across the economy though lawmakers across the spectrum are likely to do everything in their power to avoid an outcome with such blunt cuts that would be felt from the Pentagon to places like the Department of Education.

But much remains to be seen in the months ahead with the most conservative members of the House for now clearly itching for another fight.

"We shouldn't fear a government shutdown," Rep. Bob Good (R-VA) told reporters this week.

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>>> Federal Reserve holds interest rates steady, forecasts two more rate hikes this year


Yahoo Finance

by Jennifer Schonberger

June 14, 2023


https://finance.yahoo.com/news/federal-reserve-interest-rate-policy-decision-june-14-2023-180115494.html


The Federal Reserve held interest rates steady Wednesday, but officials signaled they are prepared to raise rates again this year to tame stubborn inflation.

The central bank maintained its benchmark interest rate in the range of 5%-5.25%, the first time since January 2022 the Fed made no change to interest rates following a policy meeting.

Fed officials did, however, raise their interest rate forecasts for this year, signaling rates could rise to as high as 5.6%, implying two additional rate hikes are likely this year. Three officials see rates rising closer to 6%.

"Inflation pressures continue to run high," Federal Reserve Chair Jerome Powell said at a Wednesday press conference. Getting inflation down to the Fed's target "has a long way to go."

Next year, officials see interest rates falling by 100 basis points to around 4.6%, higher than the 4.3% forecast in March.

The pause announced Wednesday, Powell said, shouldn't be called a "skip." What it does do, he added, is give the economy more time to adapt to prior hikes while letting Fed officials see the "full consequences" of the banking turmoil that roiled the financial system in the spring.

"We are trying to get this right," Powell said.

Stocks closed mixed Wednesday. The S&P 500 (^GSPC) was roughly flat, while the Dow Jones Industrial Average (^DJI) fell 0.68%, or more than 200 points. The tech-heavy Nasdaq Composite (^IXIC) rallied off lows to gain 0.39%.

Many regional banks that struggled following the failures of several sizable lenders fell again Wednesday. PacWest (PACW) ended the day down 6.5%, Western Alliance (WAL) fell 5.8%, and Zions (ZION) was down 5.7%. Banks are highly sensitive to rate increases.

The Fed had raised rates at 10 straight policy meetings through May, bringing its target range from 0%-0.25% to 5%-5.25%, the highest since 2007, in just 14 months. Wednesday's decision to hold rates steady was unanimous.

Since peaking at 9.1% in June 2022, inflation has come down, with headline inflation rising just 4.1% in May according to data released on Tuesday. On a "core" basis — which strips out volatile food and energy prices — inflation clocked in at 5.3% for May. That compares with 5.5% seen in April.

Both readings are still well above the Fed's 2% target.

Updated economic projections released Wednesday, said Renaissance macro economist Neil Dutta, allowed the Fed to have it both ways — pause rate hikes and also be more aggressive in signaling future action.

"This is what the Fed had to do," Dutta wrote in an email.

The Fed in its statement did leave itself room to raise rates again this year, keeping language that said, "In determining the extent to which additional policy firming may be appropriate … the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments."

Powell said at a press conference that the subject of what to do in July "came up" at the central bank's Federal Open Market Committee meeting Wednesday but the Fed didn't make a decision about what to do next month.

Powell also brought back language made popular by former Fed Chair Janet Yellen ahead of the Fed's rate hiking cycle that began in 2015 — "live" meetings.

Asked directly about July's meeting, Powell said — "One, [a] decision hasn't been made. Two, I do expect that it will be a live meeting."

Powell also emphasized that inflation isn't coming down as quickly as the central bank had hoped.

"We want to see it moving down decisively," he said. "That's all. Of course, we are going to get inflation down to 2% over time. We want to do that with the minimum damage we can to the economy, of course. But we have to get inflation down to 2%, and we will."

Along with its policy decision on Wednesday, the Fed released an updated Summary of Economic Projections (SEP), which outlined officials’ expectations for growth, inflation, rates, and the labor market over the balance of this year and the next two.

Fed officials see inflation finishing the year close to 4% now, compared with 3.6% prior. Unemployment is only seen rising to 4.1% from 4.5% previously. Officials now see stronger economic growth this year of 1% versus 0.4% previously.

Officials again noted that tighter credit conditions for households and businesses are likely to weigh on the economy, hiring and inflation and the degree of impact is uncertain.

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>>> The S&P 500 is in a bull market. Here’s what that means and how long the bull might run


Associated Press

June 8, 2023


https://apnews.com/article/bull-stock-market-wall-street-cde5d042da6aa887e7d5ba64b62815ff


The S&P 500 is now in what Wall Street refers to as a bull market, meaning the index has risen 20% or more from its most recent low.

Here are some answers to questions about bull and bear markets:

WHY IT IS CALLED A BULL MARKET?

Wall Street’s nickname for a surging stock market is a bull market because bulls charge, said Sam Stovall, chief investment strategist at CFRA. In contrast, bears hibernate, so bears represent a market that’s retreating.

WHEN DID THE NEW BULL MARKET BEGIN?

This latest bull market is considered to have begun on Oct. 13, 2022, a day after the S&P 500 closed at its most recent low of 3,577.03.

WHY HAS THE MARKET RALLIED?

Largely because the economy has defied predictions by not falling into a recession, at least not yet.

Markets tumbled last year on fears about how the worst inflation in decades would ravage the economy. More precisely, Wall Street got spooked by the aggressive measures the Federal Reserve took to combat high inflation.

The Fed has yanked interest rates to their highest level since 2007, up from virtually zero early last year. The aim was to drive down inflation by slowing the economy and dragging down prices for stocks, bonds and other investments. That left many investors bracing for a recession for months, but a remarkably resilient job market has kept the economy afloat.

Inflation, meanwhile, has eased off since hitting a peak last summer. That has Wall Street hoping for the Fed to soon stop hiking interest rates.

Both the Dow Jones Industrial Average and the Nasdaq are already in bull markets, having entered them in November and May, respectively.

SO EVERYTHING’S FINE?

Hardly. The Fed is likely still not done hiking interest rates. Even if it hold rates steady at its next meeting, which would be the first time that’s happened in more than a year, the expectation among traders is for the Fed to resume hiking in July. The hope is that will ultimately be the last rate hike, but persistent inflation could upend that.

That keeps up the pressure on the overall economy and particularly on the banking and manufacturing industries, which have already shown some cracks.

Most of the gains for the S&P 500 this year have come from just a small group of stocks, which critics say is unsustainable. Apple (+30%), Microsoft (+44%) and Alphabet (+25%), the companies with the highest market values in the S&P 500, all outpaced the index. Their huge size gives their movements extra weight on the index, while nearly half the stocks in the index have dropped so far in 2023.

HOW LONG DO BULL MARKETS TYPICALLY LAST?

Since 1932, bull markets have lasted an average of nearly 5 years and the S&P 500 sees a gain of 177.8%. The longest bull market started in March 2009, near the end of the Great Recession, and roamed Wall Street for almost 11 years.

WHEN WAS THE PREVIOUS BULL MARKET?

The previous bull market started on March 23, 2020, as the market recovered from a lightning-fast bear market caused by the onset of the global pandemic. That bull market was the shortest dating back to 1932, lasting about 21 months, according to data from S&P Dow Jones Indices. Still, the S&P 500 more than doubled (up 114.4%).

WEREN’T WE JUST IN A BEAR MARKET?

By entering a bull market, the S&P 500 effectively put an end to the bear market that began on Jan. 3, 2022. Officially, the bear market is considered to have ended on Oct. 12, 2022.

Declaring the end of a bear market may seem arbitrary, and different market watchers use different definitions, but it offers a useful marker for investors.

HOW MEAN WAS THAT BEAR?

The now-deceased bear market lasted about nine months and saw a drop of 25.4%. It was rather tame as far as bear markets go. Since 1950, the average bear market has lasted 13 months and the S&P 500 fell 34.2%. Since 1929, the average bear market has lasted 19.6 months and the S&P 500 has dropped 39.4%

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>>> A 24-year-old stock trader who made over $8 million in 2 years shares the 4 indicators he uses as his guides to buy and sell


Business Insider

by Laila Maidan

May 30, 2023


https://finance.yahoo.com/news/24-old-stock-trader-made-063529644.html


One of Jack Kellogg's main indicators is the volume-weighted average price (VWAP).

This shows the average price paid for shares and helps him gauge sentiment.

He only uses indicators as a t=rough guide but never trades solely on them, he noted.

Jack Kellogg began trading stocks right out of high school in 2017.


Five years into his craft, he has already been exposed to various types of market conditions, including the stock market crash of 2020, the raging bull rallies of 2021, and the bear market of 2022. One thing he has learned through it all is to keep things simple and remain flexible.

"There's this acronym: KISS, keep it simple stupid. I don't think people need super fancy indicators to make money trading. I'm just using basic trend lines, support, resistance, volume, and those are all my indicators," Kellogg said. "I think if you overcomplicate the indicators, it will actually throw off your trading because then you're trading more on the indicators than the actual price action."

This attitude has allowed him to become a versatile trader who takes both long and short positions when appropriate, which helped him to continue trading throughout the bear market of 2022. His tax returns, viewed by Insider, showed that he reported over $8 million in gains from day trading in 2020 and 2021. His returns gained momentum in 2020 when he had a total income of $1.6 million. In 2021, that amount grew to a total income of $6.5 million.

Kellogg has come a long way since starting off with $7,500 which is what he initially deposited when he started trading. His road to success wasn't a straight line. When he first attempted to trade, he was down a few hundred dollars. This led him to realize that he didn't know what he was doing.

So his next moves included switching off real trading and testing his skills through paper trading. Then, he signed up for an online course his parents helped pay for. The program, which was created by Timothy Sykes, a trading teacher and former penny-stock trader known for claiming to flip his bar mitzvah cash gift into over $1 million in gains, helped him develop the skills and patience he then used to craft his skill.

By the time the stock market began to rally hard in 2020, he was ready to ride the upwards wave. In 2022, when the market slowed, he continued to reel in profits by betting on popular stocks like Bed Bath and Beyond (BBBY) and AMC (AMC), the latter of which banked him $60,000, according to a screenshot of his E-Trade brokerage account. He also traded a few small-cap stocks and saw large wins on single trades like Intelligent Living Application Group Inc. (ILAG) which earned him over $91,000, according to screenshots of his Guardian account.

His top 4 indicators

The first indicator he uses as a sentiment guide is the volume-weighted average price (VWAP), which shows the average price paid for shares through all trading adjusted for volume. He uses it on the daily chart as a guide to determine a good buy-in price for the stock he's trading. This keeps him from being a chaser, the term popularly used for those who enter a position too late or after a stock begins to rally.

If the goal is to buy low and sell high, you don't want to pay more than what the average buyer paid, he noted. Therefore, Kellogg won't enter a position if the price is above the VWAP line. The opposite is true if he's shorting a stock: if the price is beneath the VWAP, he generally won't short the stock.

Oftentimes, he'll use this indicator to also determine when to exit his position because that point can sometimes indicate where a stock's price will begin to drop off. The same is also true in reverse: he'll sometimes use the VWAP to determine the price point where he'll cover his position. Therefore, if he shorted a stock at $9 and the VWAP is at $7.50, he'll use that price as a point to lock in profits.

For example, on January 5, he took a short position on ticker AMTD at $2.50. VWAP's center line was trending at around $2.22. So Kellogg covered his position at $2.25 and made a 10% profit.

The next indicator is linear regression, which shows the direction price is trending and when it may change its direction. They are three lines that overlay the candles. The lower and upper lines are the ranges of price movements or volatility, while the center line indicates the average between the two. Price action above the top line signals an overbought stock, and below the bottom line, an oversold stock.

"So the better a stock is respecting the lines of the channel that's created, the more predictable I think the stock's going to be," Kellogg said. This gives him a better sense that the stock's price action will trend according to his thesis.

The next indicator is volume which shows the number of shares being traded at any moment in time. Kellogg mainly uses volume as a potential indicator that a stock may reverse.

"Seeing big volume go through, I know that potentially a lot of people are on the wrong side. So if a big volume spike goes through near the high of the day, it's possible that a lot of people are buying the stock and a lot of people are chasing," Kellogg said.

Finally, he keeps his eye on the support and resistance lines, the former being where the price tends to hold and the latter where it tends to sell off. The levels change throughout the day. Kellogg tries to find the key levels by looking for a parallel increase in volume in those areas. He also pays attention to how many times and for how long a price level holds to determine how strong that point is. While it's not an exact science, general areas where the price hoovers for 30 minutes to an hour are the strongest, he said.

"Eventually, you'll see a bouncing ball-type price action if the stock is going to go lower," Kellogg said. "So you see it bounce from $7 to $8, then bounce again from $7.30 to $7.50, and then bounce from $7.40 to $7.10, then bounce from $7.20 and eventually cracks the support below $7. And then the question is, is it going to create a resistance level at $7 and continue to head lower?"

At the end of the day, price action is king, Kellogg noted. Even if you have a thesis about why a stock's price can move in a certain direction, if the price is moving differently, you need to cut losses.

"I don't ever just base my entire decision off an indicator. So if an indicator isn't agreeing with the trade thesis, then I simply will cut my losses," Kellogg said. "So I've never ever blamed any of my losses ever on an indicator because I don't let it get to that point. If the price action is continuing down, then I will cut my losses or if the price action is continuing up, then I'll cover my short positioning."

Everyone has access and can view the same data — it's really about what you do with that data, he said. Where most traders struggle is with the psychology of trading. You can have the best strategy and indicators, but if you don't have the discipline to stick to it, then you will constantly find yourself in a bad situation. Most people don't put in enough effort to master their emotions, he said.

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>>> The Fed Has No Good Options. The Risk of a Misstep Is Growing


Barron's

By Megan Cassella

April 28, 2023


https://www.barrons.com/articles/federal-reserve-interest-rate-hikes-economy-7c916f5c

https://investorshub.advfn.com/boards/read_msg.aspx?message_id=171815022


The Federal Reserve is struggling to cool inflation further without damaging the economy. The easy part is over

Since the Federal Reserve first kicked off its inflation-fighting campaign 15 months ago, it has raised interest rates nine consecutive times and wound down its pandemic-era bond-buying program, notching the fastest pace of monetary policy tightening in four decades. So far, it has achieved a balance that its critics thought nearly impossible, cutting headline price growth nearly in half while keeping the U.S. economy humming.

Since the Federal Reserve first kicked off its inflation-fighting campaign 15 months ago, it has raised interest rates nine consecutive times and wound down its pandemic-era bond-buying program, notching the fastest pace of monetary policy tightening in four decades. So far, it has achieved a balance that its critics thought nearly impossible, cutting headline price growth nearly in half while keeping the U.S. economy humming.

The problem is that the job is far from over, and the most difficult days lie ahead. As the central bank’s policy committee gears up for its May 2-3 meeting and what is widely expected to be a 10th rate hike, it will be embarking on a new and more volatile phase in its tightening cycle, marked by far less clarity than what has come before. The risk of a misstep is growing, and the consequences of over- or undershooting would be severe.

The central challenge for the Fed is that the economic outlook is souring at the same time that progress on reining in inflation is stalling out. Economic growth in the first quarter decelerated more than expected, data out this past week showed, while the Fed’s preferred inflation gauge is down less than a full percentage point from its peak and still more than double the bank’s 2% inflation target.

That contradiction will weigh on the Fed as it debates whether and when to pause its rate-hike campaign, forcing officials to decide how much economic pain is acceptable in the service of restoring price stability, and how much would be considered too much for the country to bear.

In a best-case scenario, the Fed will carve a winning path between two losing propositions: giving up the inflation fight too soon, which would risk a severe recession later, or pushing rates too deeply into restrictive territory and sending the economy into a tailspin as soon as the second half of this year. Success will depend on both skill and luck, and is by no means assured.

“They haven’t even gotten close to the hardest mile,” says Diane Swonk, chief economist at KPMG.

The Fed has lifted the federal-funds rate from near zero to a current range of 4.75%-5%, with more hikes likely from here. In doing so, it has ushered in an end to the easy-money policies that have defined the U.S. economy since the start of the 2008-09 financial crisis.

A continued transition to a more restrictive policy stance will ramp up the pain, further reducing demand for goods and services, weakening the labor market, and greatly increasing the cost of servicing debt—including mortgages, car loans, and the government’s more than $31 trillion in federal borrowings. And it will test the strength of a generation of companies that grew up in an accommodative policy environment and haven’t had to function under tighter monetary conditions.

At the same time, the financial sector is on increasingly unsteady footing. Higher rates have wreaked havoc with bank balance sheets; the industry’s unrealized losses on securities totaled more than $620 billion in the fourth quarter of 2022, according to the Federal Deposit Insurance Corp. The first quarter of this year saw two high-profile bank failures, which forced the Fed to establish an emergency lending facility. And Wall Street is rife with talk of impending chaos among nonbank lenders and alternative-asset managers, should interest rates move much higher.

Erring in either direction—by raising rates too much or not enough—would risk disrupting a fragile financial system and throwing millions of Americans out of work, erasing years of labor-market gains. Even an ideal outcome, cooling the economy without causing a deep recession, probably will lead to some painful fallout, so long as the Fed remains ironclad in its resolve to keep interest rates elevated even as joblessness rises, growth sputters, and a public backlash ensues.

“They’re walking a tightrope without a net,” Swonk says.

The Federal Reserve finds itself fighting inflation today partly because of policy decisions made more than a decade ago, when central banks around the globe grew worried about deflation in the aftermath of the financial crisis. While the U.S. economy recovered, price growth regularly undershot the 2% annual target that the Fed set early in 2012.

In response, Fed officials kept interest rates near zero to try to stoke demand and inflation. They also engaged in quantitative easing, a form of bond buying designed to increase the money supply and encourage lending and spending.

“It was the new abnormal,” says Ed Yardeni, a former Federal Reserve staff member and veteran investment strategist who now leads Yardeni Research.

The Fed had raised interest rates only modestly when Covid-19 hit in 2020, and it followed the same playbook it had written a decade before to cushion the blow from pandemic-related shutdowns. It slashed the federal-funds rate to zero and bought securities to increase liquidity in the financial system.

When inflation began to ramp up early in 2021, Fed Chairman Jerome Powell and other Fed officials, along with many economists, initially dismissed the trend as “transitory,” a temporary consequence of closing and subsequently reopening the global economy. The expectation was that price growth would naturally slow as supply chains healed, employees returned to work, and factories came back online.

Because the previous recovery had taken so long to gain traction, with more than 10 years passing before the labor market came close to what economists consider full employment, the Fed remained on the sidelines, loath to nip the post-Covid recovery in the bud. The central bank stayed put even as Congress passed another $1.9 trillion in pandemic-related fiscal relief and as state and local governments reported massive budget surpluses. By the time Powell announced the first rate hike in March 2022, the headline consumer price index had already reached 8.5%.

“They were right to gamble on running the economy hot,” says Adam Posen, president of the Peterson Institute for International Economics and a former Bank of England official. But once inflation took off, “what I fought them on was a failure to pivot.”

The historical context is relevant for two reasons: For one, it offers cause to question whether a Fed that was caught flat-footed by inflation two years ago will be able to recognize when it is time to shift gears again. The fear among Fed critics is that the central bank will be inclined to keep policy restrictive for longer than necessary to compensate for having let price growth get out of hand in the first place.

But the back story also serves as a reminder that the current economy has long grown used to low rates, and some aspects of the economy have become dependent on them. Some economists warn that moving back to a world of tighter policy—or returning to the old normal—will be a major shock to the system.

“Are we going to be able to make this transition…and absorb the shock of having all that happen basically in one year?” Yardeni asks. “That’s the big debate.”

Economists who think the Fed should pause say the economy is already sputtering. Because monetary policy operates with a lag, their view is that the amount of tightening to date will be sufficient to bring inflation back to target.

Some recent data support this view. Unemployment claims are rising materially, with the share of Americans receiving jobless aid up nearly 45% from a September low. The manufacturing sector is slowing, with factory activity contracting for five straight months. And first-quarter gross domestic product, which rose at an annual rate of 1.1%, fell short of economists’ expectations of 1.9% growth.

Credit conditions, meanwhile, are tightening, spelling trouble for the small-business sector, which so far has propped up the labor market and needs access to loans to keep hiring. Some economists expect further chaos in the banking sector as well.

“From my view, another rate hike is dangerous,” says Bill Spriggs, chief economist at the AFL-CIO and a Howard University economics professor. “[The Fed] got the yellow card several months ago. Now it’s time for the red card.”

Still, inflation remains far above the Fed’s target. A long-awaited slowdown in shelter costs has been elusive. Services prices, which the Fed is eager to see cool, have barely budged, and goods prices, which had been falling, are now turning upward again. Wage growth, too, remains hot: Compensation costs for all civilian workers climbed 1.2% in the first quarter of 2023, accelerating from the 1.1% pace set during the previous quarter, data released on Friday showed.

The core personal consumption expenditures, or PCE, deflator, the inflation gauge that the Fed watches most closely, stood at 4.6% in March and slowed less during the month than economists had expected, according to a separate data set released Friday. Viewed on a quarterly basis, which smooths out volatile month-to-month changes, core PCE has more or less been moving sideways since the middle of last year. And that is after the factors that initially had been considered the root causes of inflation—supply-chain snarls, pandemic shutdowns, generous fiscal stimulus—have mostly subsided.

“There was always at least some transitory component to inflation,” says Jason Furman, a Harvard University economist and former Obama White House economic adviser. “Getting rid of underlying inflation is a lot harder.”

That leaves the Fed, which has vowed to prioritize a return to price stability even at the expense of economic pain, with more work to do. Very few of what economists consider primary indicators of tightening monetary policy are showing significant deceleration, Posen notes. Factors such as wage growth, construction employment, and credit spreads all look fairly strong.

Nor have the risks of an upside inflation surprise disappeared. Labor markets remain tight. Semiconductors are still scarce. And fiscal stimulus continues to flow out to areas such as defense and green infrastructure.

“Inflation could well continue to be stubborn,” Furman says. “The Fed could have to raise rates more later this year. The market still isn’t fully prepared for that.”

Given the cards on the table, the Fed is poised to keep tightening for now. But will officials know when it is time to stop? Perhaps the greatest risk to the economy in the coming months is that they won’t.

For one, bank officials are reliant on economic data that are backward-looking and difficult to assess, given the ways in which the pandemic has altered consumer behavior and scrambled seasonal-adjustment calculations. They are also determined to secure a slowdown in services inflation before easing up on rate hikes, and that means waiting for spending categories such as airline travel, daycare, and recreation services to show signs of price deceleration.

Yet those areas are some of the last to feel the impact of interest-rate hikes, which work primarily by making goods, especially homes and cars, more expensive. “By definition, you have to overshoot in other sectors that are more interest-rate sensitive to get at [services] inflation,” Swonk says. “The system is rigged to overshoot.”

Fed officials have emphasized their fear of repeating history, specifically the painful inflation fight of 40 years ago during which then-Fed Chairman Paul Volcker hiked rates dramatically, slashed them when recession hit, and then pulled them up again months later when inflation proved more entrenched than anticipated. Public comments from Powell and other top officials in recent months suggest that they would rather keep rates high and weather the economic pain than lower rates only to have to lift them again in relatively short order.

“They’ve been studying past instances of when the Fed let inflation get out of control, and reached the conclusion that the common mistake was giving up too soon,” says Bill Nelson, chief economist at the Bank Policy Institute, who spent more than 20 years at the Fed’s Board of Governors. “I worry that is going to leave them somewhat dug in.”

There is a more recent historical lesson to learn, too. The Fed’s primary policy error in the past two years was misreading the economic situation and thus failing to act quickly enough to change course, a blunder that allowed inflation to spiral out of control.

Now we will see whether they make the same mistake again.

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>>> For Only the 5th Time in 153 Years, This Leading Economic Indicator Is Sending a Terrifying Warning to Wall Street


Motley Fool

By Sean Williams

Mar 12, 2023


https://www.fool.com/investing/2023/03/12/5th-time-in-153-year-indicator-warning-wall-street/?source=eptyholnk0000202&utm_source=yahoo-host&utm_medium=feed&utm_campaign=article


KEY POINTS

One of Wall Street's oldest economic indicators indirectly suggests the Dow, S&P 500, and Nasdaq are nowhere near their respective bottoms.

Multiple recession-forecasting tools imply an economic downturn is imminent.

Despite short-term turmoil, history conclusively shows that long-term investors have been handsomely rewarded for their patience.

Whether you realize it or not, stock market corrections, crashes, and bear markets are normal parts of investing. Since the beginning of 1950, the benchmark S&P 500 has undergone 39 separate double-digit percentage declines, according to data provided by sell-side consultancy company Yardeni Research.

Last year marked the most recent of these 39 notable moves lower. The ageless Dow Jones Industrial Average, broad-based S&P 500, and growth-dependent Nasdaq Composite all fell into a bear market and closed out 2022 with respective losses of 9%, 19%, and 33%. These represent the worst returns for all three major U.S. indexes since 2008.

But if one leading economic indicator has anything to say about it, the worst is yet to come for Wall Street.

A major warning is sounding on Wall Street for only the fifth time since 1870
Before digging in, let's state the obvious: There is no 100%, for-sure, concrete indicator that will accurately predict when bear markets or crashes will occur, how long they'll last, or how steep their declines will be.

However, there are indicators that, over long stretches of history, have provided flawless or near-flawless prognostications when it comes to either forecasting a recession or predicting where the stock market will head next. The U.S. money supply is one such leading economic indicator with an extensive track record of success within certain parameters.

The two commonly tracked money supply metrics are known as M1 and M2. M1 takes into account the amount of cash bills and coins currently in circulation, as well as traveler's checks. In other words, M1 is money in your pocket or at your immediate disposal. M2 accounts for everything in M1 but adds savings accounts, certificates of deposit (CD) below $100,000 at the bank, and money market funds. This is money you have pretty quick access to, but you need to do a bit more work to get it.

The blaring warning being sounded to Wall Street relates to M2, and it comes courtesy of data presented on social media platform Twitter by the CEO and founder of Reventure Consulting, Nick Gerli.

Using historic M2 and U.S. inflation rate data from the Federal Reserve Bank of St. Louis and the U.S. Census Bureau, Gerli plotted out how the money supply and inflationary/deflationary pressures can sometimes correlate.



As you can see from Gerli's chart above, there have been only five instances since 1870 when the U.S. money supply (M2) declined at least 2% on a year-over-year basis. Of the previous four occurrences, three economic depressions and one panic followed, along with double-digit unemployment rates in each case. The fifth such decline of at least 2% in M2 over the past 153 years is occurring right now.

The issue at hand is what even a small decline in money supply can do to an economy with relatively high inflation, such as the U.S. is experiencing right now. If there's less money in circulation as prices climb, something eventually breaks. The expectation would be for an abrupt slowing in buying activity and across-the-board weakness in pricing power, including energy commodities, such as oil and natural gas.

Since the stock market doesn't necessarily trade in lockstep with the U.S. economy, you might be wondering why a decline in M2 is a concern for Wall Street. The answer is simple: Since World War II, the stock market hasn't reached a bottom prior to the National Bureau of Economic Research declaring a recession. If M2 portends a deflationary/recessionary period is forthcoming, it would mean stocks are nowhere near their bottoms just yet.

M2 is far from Wall Street's only concern

As I've pointed out in recent weeks, M2 is just one of many leading indicators forecasting a recession in the not-too-distant future.

One of the most-tracked recession probability tools is the New York Federal Reserve's recession probability indicator. This forecasting indicator measures the difference in yield (known as "spread") between the three-month and 10-year Treasury bonds. When yields invert -- short-term bonds have higher yields than longer-dated bonds -- it often suggests trouble ahead of the U.S. economy.



As of this past week, the size of the yield curve inversion between the three-month and 10-year Treasury notes hit its highest level since 1981. Meanwhile, the New York Fed's recession probability indicator suggests a 57.13% chance of a recession within the next 12 months. Over the past 56 years, a recession has occurred anytime this indicator has surpassed 40%.

Another prognosticating tool with a phenomenal track record of forecasting recessions is the Conference Board Leading Economic Index (LEI). The LEI takes 10 economic inputs into account and is presented as a six-month annualized growth rate.

Since 1949, anytime the LEI has declined by at least 4%, a recession has followed not long thereafter. The December reading for the Conference Board LEI came in at -4.2%.

Likewise, the U.S. ISM Manufacturing New Orders Index, a subcomponent of the better-known ISM Manufacturing Index (also known as the "Purchasing Managers Index"), portends trouble.

The ISM Manufacturing New Orders Index allows us to examine the strength of industrial orders in the United States. It's an index measured on a scale of 0 to 100, with 50 being the neutral baseline. A number above 50 implies industrial order expansion, while a figure below 50 suggests contraction. Before rebounding in February, the January 2023 reading was 42.5. Over the past 70 years, a figure below 43.5 has been a harbinger of a recession.

Smart investors are continuing to put their money to work

Although M2 has a history of forecasting economic depressions or panics when it declines by at least 2%, it's important to note that all these events occurred between the 1870s and 1930s. The Federal Reserve has a far better understanding of how to adjust monetary policy to affect change(s) in the U.S. economy than it did 100 years ago.

Similarly, the federal government's ability to use fiscal policy measures to support the U.S. economy is considerably more refined today than in the 1870s and 1890s. While numerous indicators suggest an economic downturn is forthcoming, a depression doesn't seem likely.

What's more, M2 was increased by a considerable amount during the COVID-19 pandemic. Whereas a 2% or 3% decline in the money supply spelled trouble a century ago, the expansion of M2 from $15.3 trillion to nearly $21.3 trillion between December 2019 and January 2023 may allow for a sizable contraction without too much pain for the U.S. economy.

The point to be made is that even if an economic downturn is imminent, as so many indicators have suggested, smart investors will continue putting their money to work..

Every year, market analytics company Crestmont Research updates its historic data on what an investor would, hypothetically, have generated in total returns, including dividends paid, if they'd purchased an S&P 500 tracking index at any point since the beginning of 1900 and held 20 years.

Among the 104 ending years examined (1919 through 2022), Crestmont found that every rolling 20-year period would have produced a positive total return. In fact, more than 40% of the end years examined would have resulted in an annualized total return of at least 10.8% over 20 years.

Though the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite have their rough patches, they tend to increase in value over time. For long-term investors, it makes every double-digit percentage decline in these indexes an opportune time to buy high-quality stocks at a discount.

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>>> Why Biden’s 4% buyback tax could boost stock prices and dividends


Market Watch

Feb. 7, 2023

By Mark Hulbert


https://www.marketwatch.com/story/why-bidens-4-buyback-tax-could-boost-stock-prices-and-dividends-11675817296?siteid=yhoof2


The tax applies only to net buybacks, which are much smaller than gross repurchases

The Biden administration’s new stock buyback tax will have little impact on the overall stock market. It might even actually help it. I’m referring to the new 1% excise tax on share repurchases that went into effect on Jan. 1.

This tax has set off alarm bells in some corners of Wall Street, on the theory that buybacks were one of the biggest props supporting the past decade’s bull market — and anything weakening that prop could lead to much lower prices.

Even more alarms went off after President Joe Biden telegraphed his intent to quadruple federal taxes on buybacks, to 4%.

While this proposal is considered dead on arrival on Capitol Hill, the focus on possibly increasing this tax from 1% reduces the likelihood that it will be eliminated anytime soon.

Tax applies to net repurchases

Yet stock-market bulls shouldn’t worry. One reason is that the new excise tax — whether 1% or 4% — is applied to net buybacks — repurchases in excess of how many shares the corporation may have issued.

As has been widely reported for years, the shares that many companies are buying back often are barely enough to compensate for the new shares they issue as part of their compensation of company executives. As a result, net repurchases — on which the new tax will be levied — are an order of magnitude smaller than gross repurchases.

The chart below provides the historical context. It plots the S&P 500’s SPX, -0.88% divisor, which is the number used to divide the combined market cap of all component companies to come up with the index level itself. When more shares are issued than repurchased, the divisor rises; the reverse causes the divisor to fall.

Notice from the chart that, though there have been some year-to-year fluctuations in the divisor, the divisor’s end-of-2022 level was virtually unchanged from where it was at the top of the internet bubble.

There is much irony in the excise tax’s application to net repurchases. Much of the political rhetoric that led to the creation of the tax was based on the complaint that companies were repurchasing their shares simply to reduce the share dilution that would otherwise occur when executives are given shares as part of their compensation packages. But it’s precisely when share repurchases equal share issuance that’s the tax would not apply.

The buyback tax might encourage higher dividends

The reason why the new tax on share repurchases might actually help the stock market traces to the impact it could have on companies’ dividend policy. Up until now, the tax code provided an incentive for firms to repurchase shares rather than pay dividends when they wanted to return cash to shareholders. By at least partially removing that incentive, companies going forward may turn to dividends more than they did previously. The Tax Policy Center estimates that the new 1% buyback tax will lead to “a roughly 1.5 percent increase in corporate dividend payouts.”

This would be good news because, dollar for dollar, a higher dividend yield has more bullish consequences than a higher buyback yield. (The buyback yield is calculated by dividing per-share buybacks by share price.) To show this, I compared the predictive abilities of either yield. I analyzed quarterly data back to the early 1990s, which is when the total volume of buybacks in the market began to be significant.

The accompanying table reports the r-squareds of regressions in which the different yields are used to predict the S&P 500’s return over the subsequent 1- or 5-year periods. (The r-squared measures the degree to which one data series explains or predicts another.) Notice that the r-squareds are markedly higher for the dividend yield than for the buyback yield

When predicting S&P 500’s return over subsequent 1 year When predicting S&P 500’s return over subsequent 5 years

Dividend yield 4.2% 54.9%
Buyback yield 1.0% 10.2%

The bottom line? While the new buyback tax is unlikely to have a huge impact on the stock market, the impact it does have might be more positive than negative.

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>>> Jobs report: U.S. economy adds 517,000 jobs in January, unemployment rate falls to 3.4% as labor market stuns


The unemployment rate fell to the lowest level since May 1969.


Yahoo Finance

by Alexandra Semenova

February 3, 2023


https://finance.yahoo.com/news/january-jobs-report-labor-market-economy-february-3-2023-125436675.html


U.S. job growth blew past expectations in the first month of the year as the labor market continued to breeze through inflation-fighting monetary tightening by the Federal Reserve.

The Labor Department released its monthly jobs report for January at 8:30 a.m. ET on Friday. Here are the numbers, compared to Wall Street estimates:


Non-farm payrolls: +517,000 vs. +188,000 expected

Unemployment rate: 3.4% vs. 3.6% expected

Average hourly earnings, month-over-month: +0.3% vs +0.3% expected

Average hourly earnings, year-over-year: +4.4% vs. +4.3% expected


Friday's shock numbers mark a sharp jump from the prior month, which saw payrolls rise by an upwardly revised 260,000. The unemployment rate slipped to 3.4% in January, the lowest since 1969.

The blowout figures come just as the employment picture began to show some signs of moderation, with monthly data on a downtrend in recent months before January's outlier report.

The Federal Reserve has raised interest rates by 450 basis points, or 4.5%, since March 2022 in an effort to slow the economy and rein in inflation. Friday's data shows that even with these moves, the U.S. labor market remains strong.

U.S. stock futures fell following the release as the latest data defied investor optimism the Federal Reserve may pause its interest rate-hiking campaign in coming months. Stocks pared some losses early into the session on Friday but remained in red figures.

On Wednesday after the U.S. central bank delivered its latest interest rate hike, Fed Chair Jerome Powell said the labor market continues to be out of balance, and that reducing inflation is likely to require a period of below-trend growth and some softening of labor market conditions.

"This is a labor market on heat. Nobody would have expected a number as monstrous as this!" Principal Asset Management chief global strategist Seema Shah said in a note. "Is Fed Chair Jerome Powell now wondering why he didn’t push back on the loosening in financial conditions?"

"It’s difficult to see how wage pressures can possibly soften sufficiently when jobs growth is as strong as this and it’s even more difficult to see the Fed stop raising rates and entertain ideas of rate cuts when there is such explosive economic news coming in," Shah added.

Average hourly earnings rose by 0.3%, on par with the monthly increase in December. On an annual basis, wages rose 4.4% in January, a slightly higher pace than the 4.3% in the prior month. The labor force participation rate ticked up to 62.4%.

Gains were widespread across industries, with the largest increases seen across leisure and hospitality, professional and business services, and health care.

Leisure and hospitality, one of the industries hardest hit by the pandemic, continued its strong recovery, with employers adding 128,000 jobs in January. Employment in the sector remains 495,000 jobs, or 2.9% short of its pre-pandemic February 2020 level but is steadily narrowing.

Employment in professional and business services rose by 82,000 jobs, while health care added 58,000 jobs in January.

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Chart-wise, the Nasdaq got back above its 200 MA today, and also above the Dec high (barring a late day selloff). This would send a good TA signal for the Nasdaq, which has been the most beaten down of all the main indices during the bear market.

The S+P 500 is already well above its 200 MA, but is nearing a test of its Dec high. Once it closes above the Dec high, this will be significant because even if it subsequently sells off and drops back below the Dec high (which is likely in the weeks ahead), the S+P 500 will have re-established a pattern of higher lows and higher highs (Dec low higher than Oct low, and Jan high higher than Dec high), ie - an uptrend (albeit tentative) This would support the idea that the bottom may be in (Oct), and a new uptrend has begun. Still early though.

Another favorable TA signal coming soon for the S+P 500 will be a 'Golden Cross', which should occur next week. This is a lagging indicator, but would be a plus for the bullish side. The DJIA already had its Golden Cross in Dec, but the Nasdaq's is still numerous months away.




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>>> ‘Scared the Hell Out of Me’: NYSE’s Wild Start Rattles Traders

Bloomberg

Bailey Lipschultz, Jessica Menton and Yiqin Shen

January 24, 2023


https://finance.yahoo.com/news/scared-hell-nyse-wild-start-175239615.html


‘Scared the Hell Out of Me’: NYSE’s Wild Start Rattles Traders

(Bloomberg) -- A chaotic open for some stocks listed on the New York Stock Exchange sent chills across Wall Street as dozens of the largest companies in the US seemed to erase billions of dollars in market value for no apparent reason, leaving some investors frustrated and others clamoring for an explanation.

Trading was halted for dozens of big-cap stocks within the first 30 seconds of Tuesday’s session after they appeared to post wild swings that puzzled investors. The NYSE’s operations were back to normal less than 20 minutes later.

Still, traders and portfolio managers were shocked by the magnitude of the apparent moves. Wells Fargo & Co. appeared to have crashed 15%, Walmart Inc. looked like it wiped out $46 billion, and AT&T Inc. seemingly swung between a 20% gain and a 21% tumble in a matter of seconds.

“It scared the hell out of me when I first saw it, one of my biggest holdings was down 12.5%,” said Matt Tuttle, CEO of Tuttle Capital Management. “I would be surprised if some people didn’t end up getting hurt in this. Yes they halted the stocks, but there were trades before the halt and I don’t know what you end up doing about that.”

Ken Mahoney, CEO of Mahoney Asset Management, said he was trying to sell stocks like AT&T Inc. and Exxon Mobil Corp. on the initial pops. “We also thought maybe there were some arbitrage opportunities within the ETFs that hold the affected stocks,” he said in a message to Bloomberg News.

Meanwhile, Jonathan Corpina, senior managing partner at Meridian Equity Partners who is usually on the exchange trading floor but was working remotely on Tuesday morning, frantically relayed information to customers and traders.

“My traders on the floor are getting pummeled,” he said. “All of our phones are lighting up. All of our customers are calling asking what happened.”

The NYSE is investigating the opening auction and why it did not occur for some stocks, the exchange said in a statement. Investment and trading firms can consider filing claims on trades that were affected by the glitch, according to the statement. The US Securities and Exchange Commission said it also is reviewing the trading activity.

Scarce Details

“It was a bit of a scramble,” said Justin Wiggs, managing director in equity trading at Stifel Nicolaus. “We had quite a few names affected. But once it got to critical mass where more tickers were impacted, investors got less frantic since they realized it was a bigger problem than just the one ticket they had an issue with.”

Details remain scarce. But if there’s a lesson, it’s avoid market-on-open orders, according to Tuttle. “Theoretically if they don’t reverse these trades, those are the guys who lose the most,” he said by phone. “It’s making it hard for me right now looking at some of these stocks because there are some highs and lows that just aren’t a part of reality.”

Computer glitches that lead to erratic pricing and impact trading for a few minutes aren’t unheard of on American exchanges. Perhaps the most famous was in August 2012, when faulty software employed by one of the biggest market makers, Knight Trading, riddled exchanges with erroneous orders and drove swings across the market. Last year, Citigroup Inc.’s London trading desk was behind a flash crash that sent shares across Europe tumbling, while in Canada a software-issue caused a 40-minute outage at three stock exchanges.

“I can count on one hand ever since the advance of technology since the early 2000s that something like that has happened at NYSE,” said Kenny Polcari, senior market strategist at Slatestone Wealth who spent four decades at the NYSE. The issue likely affected day traders and those who use algorithmic trading, but not long-term investors, he added.

“If I happened to be in the middle of a trade with NYSE, it would have been rejected, so I would have sent it to a different venue,” he said. “If it had lasted for hours and affected other exchanges, that would be a different issue. But that didn’t happen.”

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Timiraos - >>> Inflation Report Tees Up Likely Quarter-Point Fed Rate Rise in February
Improving inflation data suggest officials will consider a smaller increase than in recent months


The Wall Street Journal

By Nick Timiraos

Jan. 12, 2023


https://www.wsj.com/articles/inflation-report-tees-up-likely-quarter-point-fed-rate-rise-in-february-11673535597


Fresh data showing inflation eased in December are likely to keep the Fed on track to reduce the size of interest-rate increases to a quarter-percentage-point at its meeting that concludes on Feb. 1.

The Labor Department reported Thursday that consumer prices fell in December, largely reflecting lower energy prices. The consumer-price index declined 0.1% from November. The index was up 6.5% for the year, down from a recent peak increase of 9.1% in June.

The core CPI index, which excludes volatile food and energy items, rose 0.3% from November, and the 12-month increase edged lower to 5.7%, from 6.6% in September. On a three-month annualized basis, core inflation was 3.1%, the lowest such rate in more than a year and down from 7.9% in June.

Fed officials have kept their options open on whether to raise rates by either a quarter percentage point or a half percentage point at their next meeting, saying that the decision would be strongly guided by the latest data about the state of the economy.

But the improving inflation data suggest officials will strongly consider the smaller increase of a more traditional quarter point, or 25 basis points. It takes time for them to see the full effects of their policy actions, and they are trying to avoid causing unnecessary declines in employment and growth.

“In my view, hikes of 25 basis points will be appropriate going forward,” said Philadelphia Fed President Patrick Harker in remarks Thursday morning.

After holding rates near zero for two years following the onset of the coronavirus pandemic, officials raised borrowing costs more aggressively last year than at any time since the early 1980s. They lifted their benchmark federal-funds rate most recently by a half percentage point in December, to a range between 4.25% and 4.5%, following four consecutive increases of 0.75 percentage point.

Fed policy makers want the economy to slow down to cool demand and reduce inflation. Recent data suggest hiring has held steady, but a separate Labor Department report last week indicated wage growth moderated at the end of last year. Wage figures are important to the Fed because officials are nervous that the labor market’s strength could sustain wage growth that keeps inflation, as measured by their preferred Commerce Department gauge, above their 2% target.

Prices of goods such as used cars are declining, a development the Fed has anticipated for more than a year. There is evidence that soaring rents and other housing costs are set to cool notably amid a sharp slowdown in demand, though that won’t be immediately reflected in the CPI because of how it is constructed.

Fed Chair Jerome Powell has recently shifted the focus away from core inflation measures toward an even narrower subset of labor-intensive services by excluding prices for food, energy, shelter and goods. Officials believe that category could help show whether labor shortages that have been pushing up wages are passing through to consumer prices.

“We welcome these better inflation reports…but I think we’re realistic about the broader project,” Mr. Powell said last month. Despite progress on goods and housing inflation, “the big story will really be the rest of it, and…that’s going to take time.”

In an interview Monday, San Francisco Fed President Mary Daly said, “I’m going to be paying a lot of attention to core services ex-housing because I’d like to see some improvement there.” That subset of prices rose 0.26% in December, well below last year’s monthly average of around 0.5%, according to economists at Morgan Stanley.

Officials are trying to balance the risk of raising rates too much with the risk of not doing enough to slow down spending and investment, which could allow higher inflation to become entrenched.

Mr. Powell said last month it was “broadly right” that the Fed’s best way to manage the risk of over-tightening would be to slow rate increases to smaller 0.25-point increments as soon as the central bank’s next meeting.

“It makes a lot of sense, it seems to me—particularly if you consider how far we’ve come,” Mr. Powell said. But he said the Fed’s actions would depend significantly on new information about the state of the economy and borrowing conditions.

Ms. Daly appeared to endorse Mr. Powell’s thinking about how to balance the risks facing the Fed on Monday. “When you’re being seriously data dependent, doing it in more gradual steps does give you the ability to respond to incoming information and account for those lags,” she said.

Most Fed policy makers last month anticipated that they would need to raise the fed-funds rate to a level above 5% this year. “I think it would behoove the committee to get into that zone as soon as we can without ignoring the data,” St. Louis Fed President James Bullard told reporters last week.

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Hard landing vrs Soft landing, per Goldman Sachs -


https://finance.yahoo.com/news/why-bad-news-is-bad-news-for-the-stock-market-morning-brief-102129317.html


2023 -

3 mo (trough occurs) - 3150 (hard) vrs 3600 (soft)

6 mo ---------------------- 3400 (hard) vrs 3900 (soft)

Year End ----------------- 3750 (hard) vrs 4000 (soft)


So either way, the bottom will occur in approx 3 months (Spring 2023), per G. Sachs Research




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>>> On the Cusp of a Global Liquidity Crisis


BY JAMES RICKARDS

JANUARY 3, 2023


https://dailyreckoning.com/on-the-cusp-of-a-global-liquidity-crisis/


On the Cusp of a Global Liquidity Crisis

Is there a financial calamity worse than a severe recession in early 2023? Unfortunately, the answer is “yes” and it’s coming quickly.

That greater calamity is a global liquidity crisis. Before considering the dynamics of a global liquidity crisis, it’s critical to distinguish between a liquidity crisis and a recession. A recession is part of the business cycle.

It’s characterized by higher unemployment, declining GDP growth, inventory liquidation, business failures, reduced discretionary spending by consumers, reduced business investment, higher savings rates (for those still employed), larger loan losses, and declining asset prices in stocks and real estate.

The length and depth of a recession can vary widely. And although recessions have certain common characteristics, they also have diverse causes. Sometimes the Federal Reserve blunders in monetary policy and holds interest rates too high for too long (that seems to be happening now).

Sometimes an external supply shock occurs which causes a recessionary reaction. This happened after the Arab Oil Embargo of 1973, which caused a severe recession from November 1973 to March 1975. Recessions can also arise when asset bubbles pop such as the stock market crash in 1929 or the bursting of a real estate bubble caused by the Savings & Loan crisis in 1990.

Whatever the cause, the course of a recession is somewhat standard. Eventually asset prices bottom, those with cash go shopping for bargains in stocks, inventory liquidations end, and consumers resume some discretionary spending. These tentative steps eventually lead to a recovery and new expansion often with help from fiscal policy.

Global financial crises are entirely different. They emerge suddenly and unexpectedly to most market participants, although there are always warning signs for those who know where to look. They usually become known to the public and regulators through the failure of a major institution, which could be a bank, hedge fund, money market fund or commodity trader.

While the initial failure makes headlines, the greater danger lies ahead in the form of contagion. Capital markets are densely connected. Banks lend to hedge funds. Hedge funds speculate in markets for stocks, bonds, currencies and commodities both directly and in derivative form.

Money market funds buy government debt. Banks guarantee some instruments held by those funds. Primary dealers (big banks) underwrite government debt issues but finance those activities in repo markets where the purchased securities are pledged for more cash to buy more securities in long chains of rehypothecated collateral.

You get the point. The linkages go on and on.

The Federal Reserve has printed $6 trillion as part of its monetary base (M0). But the total notional value of the derivatives of all banks in the world is estimated at $1 quadrillion. For those unfamiliar, $1 quadrillion = $1,000 trillion. This means the total value of derivatives is 167 times all of the money printed by the Fed.

And the Fed money supply is itself leveraged on a small sliver of only $60 billion of capital. So, the Fed’s balance sheet is leveraged 100-to-1, and the derivatives market is leveraged 167-to-1 to the Fed money supply, which means the derivatives market is leveraged 16,700-to-1 in terms of Fed capital.

Nervous yet?

Experts say, so what? These numbers are not new and have been even more stretched at certain times in the past. Simply because the financial system is highly leveraged and densely connected does not mean it’s ready to collapse. That’s true. Still, it does mean the system could collapse catastrophically and unexpectedly at any time. All it takes to collapse the system is a shock failure leading quickly to panic.

Margin calls are issued on losing position and immediate payment is demanded. Overnight repos are not rolled over. Overnight deposits are not renewed, and repayment is required. Everyone wants his money back at once. Assets are dumped to meet repayment obligations, which causes collapses in stock and bond markets, which causes even more losses and liquidations among banks and traders.

Suddenly all eyes are on the Fed for easy money and on Congress for bailouts, guarantees and more spending. We’ve seen this pattern in 1994 (Mexico Tequila Crisis), 1998 (RussiaLTCM crisis), and 2008 (Lehman Brothers-AIG crisis).

Note that two of those three most recent financial crises were not accompanied by a recession. There was no recession in 1994 and none in 1998. Only the 2008 global financial crisis happened to coincide with a severe recession.

The point is that recessions and financial crises are both bad, but they are different and do not always come together. When they do, as in 2008, stocks can easily decline 50% or more. We may be looking at such a situation today. This brings us to the key question:

If financial markets are almost always highly leveraged but financial crises occur once every eight years on average, what signs can investors look for that indicate a crisis is coming and conditions are not just business as usual for financial markets?

One of the most powerful warning signs is an inverted yield curve. This signal was last seen in 2007 just ahead of the 2008 financial crisis. A normal yield curve slopes upward from left to right reflecting higher interest rates at longer maturities. That makes sense.

If I lend you money for ten years, I want a higher interest rate than if I lend it for two years to compensate me for added risks from the longer maturity such as inflation, policy changes, default, and more.

When a yield curve is inverted, that means that longer maturities have lower interest rates. That happens, but it’s rare. It means that market participants are expecting economic adversity in the form of recession or liquidity risk. They want to lock in long-term yields even if they’re lower than short-term yields because they expect yields will be even lower in the future.

In a nutshell, investors see trouble ahead.

Other ominous signs include sharp declines in the dollar-denominated reserve positions in U.S. Treasury securities of China, Japan, India and other major economies. Naïve observers take this as a sign that those countries are trying to “dump dollars” and dislike the role of the dollar as the leading global reserve currency.

In reality, the opposite is true. They’re desperately short of dollars and are selling Treasuries as a way to get cash to prop up their own banking systems.

These are some of the many signs pointing to a global liquidity crisis. As we’ve learned in the past, these liquidity crises seem to emerge overnight, but that’s not true. They actually take a year or more to develop until they hit a critical stage at which point, they burst into the headlines.

The 1998 Russia-LTCM crisis started in June 1997 in Thailand. The 2008 Lehman Brothers crisis started in the spring of 2007 with reported mortgage losses by HSBC. The warning signs are always there in advance. Most observers either don’t know what the signs are or are simply not looking.

Well, I am looking and what I see is a rare convergence of a severe recession and a liquidity crisis at the same time as happened in 2008.

It’s coming.

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Original article >>> The Unavoidable Crash


by Nouriel Roubini

Originally published at Project-Syndicate

December 2nd, 2022


https://jheconomics.com/the-unavoidable-crash/


After years of ultra-loose fiscal, monetary, and credit policies and the onset of major negative supply shocks, stagflationary pressures are now putting the squeeze on a massive mountain of public- and private-sector debt. The mother of all economic crises looms, and there will be little that policymakers can do about it.


NEW YORK – The world economy is lurching toward an unprecedented confluence of economic, financial, and debt crises, following the explosion of deficits, borrowing, and leverage in recent decades.

In the private sector, the mountain of debt includes that of households (such as mortgages, credit cards, auto loans, student loans, personal loans), businesses and corporations (bank loans, bond debt, and private debt), and the financial sector (liabilities of bank and nonbank institutions). In the public sector, it includes central, provincial, and local government bonds and other formal liabilities, as well as implicit debts such as unfunded liabilities from pay-as-you-go pension schemes and health-care systems – all of which will continue to grow as societies age.

Just looking at explicit debts, the figures are staggering. Globally, total private- and public-sector debt as a share of GDP rose from 200% in 1999 to 350% in 2021. The ratio is now 420% across advanced economies, and 330% in China. In the United States, it is 420%, which is higher than during the Great Depression and after World War II.

Of course, debt can boost economic activity if borrowers invest in new capital (machinery, homes, public infrastructure) that yields returns higher than the cost of borrowing. But much borrowing goes simply to finance consumption spending above one’s income on a persistent basis – and that is a recipe for bankruptcy. Moreover, investments in “capital” can also be risky, whether the borrower is a household buying a home at an artificially inflated price, a corporation seeking to expand too quickly regardless of returns, or a government that is spending the money on “white elephants” (extravagant but useless infrastructure projects).

Such over-borrowing has been going on for decades, for various reasons. The democratization of finance has allowed income-strapped households to finance consumption with debt. Center-right governments have persistently cut taxes without also cutting spending, while center-left governments have spent generously on social programs that aren’t fully funded with sufficient higher taxes. And tax policies that favor debt over equity, abetted by central banks’ ultra-loose monetary and credit policies, has fueled a spike in borrowing in both the private and public sectors.

Years of quantitative easing (QE) and credit easing kept borrowing costs near zero, and in some cases even negative (as in Europe and Japan until recently). By 2020, negative-yielding dollar-equivalent public debt was $17 trillion, and in some Nordic countries, even mortgages had negative nominal interest rates.

The explosion of unsustainable debt ratios implied that many borrowers – households, corporations, banks, shadow banks, governments, and even entire countries – were insolvent “zombies” that were being propped up by low interest rates (which kept their debt-servicing costs manageable). During both the 2008 global financial crisis and the COVID-19 crisis, many insolvent agents that would have gone bankrupt were rescued by zero- or negative-interest-rate policies, QE, and outright fiscal bailouts.

But now, inflation – fed by the same ultra-loose fiscal, monetary, and credit policies – has ended this financial Dawn of the Dead. With central banks forced to increase interest rates in an effort to restore price stability, zombies are experiencing sharp increases in their debt-servicing costs. For many, this represents a triple whammy, because inflation is also eroding real household income and reducing the value of household assets, such as homes and stocks. The same goes for fragile and over-leveraged corporations, financial institutions, and governments: they face sharply rising borrowing costs, falling incomes and revenues, and declining asset values all at the same time.

Worse, these developments are coinciding with the return of stagflation (high inflation alongside weak growth). The last time advanced economies experienced such conditions was in the 1970s. But at least back then, debt ratios were very low. Today, we are facing the worst aspects of the 1970s (stagflationary shocks) alongside the worst aspects of the global financial crisis. And this time, we cannot simply cut interest rates to stimulate demand.

After all, the global economy is being battered by persistent short- and medium-term negative supply shocks that are reducing growth and increasing prices and production costs. These include the pandemic’s disruptions to the supply of labor and goods; the impact of Russia’s war in Ukraine on commodity prices; China’s increasingly disastrous zero-COVID policy; and a dozen other medium-term shocks – from climate change to geopolitical developments – that will create additional stagflationary pressures.

Unlike in the 2008 financial crisis and the early months of COVID-19, simply bailing out private and public agents with loose macro policies would pour more gasoline on the inflationary fire. That means there will be a hard landing – a deep, protracted recession – on top of a severe financial crisis. As asset bubbles burst, debt-servicing ratios spike, and inflation-adjusted incomes fall across households, corporations, and governments, the economic crisis and the financial crash will feed on each other.

To be sure, advanced economies that borrow in their own currency can use a bout of unexpected inflation to reduce the real value of some nominal long-term fixed-rate debt. With governments unwilling to raise taxes or cut spending to reduce their deficits, central-bank deficit monetization will once again be seen as the path of least resistance. But you cannot fool all of the people all of the time. Once the inflation genie gets out of the bottle – which is what will happen when central banks abandon the fight in the face of the looming economic and financial crash – nominal and real borrowing costs will surge. The mother of all stagflationary debt crises can be postponed, not avoided.

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>>> Nearly half of passengers from China to Milan have COVID: Italian officials


The Hill

BY JULIA SHAPERO

2/28/22


https://thehill.com/policy/healthcare/3790837-nearly-half-of-passengers-from-china-to-milan-have-covid-italian-officials/


Nearly half of the passengers on two recent flights from China to Milan tested positive for COVID-19, Italian health officials said on Wednesday.

About 38 percent of passengers on one flight into Milan’s Malpensa Airport tested positive for COVID, as did about 52 percent of those on a second flight, according to local officials in Italy’s Lombardy region.

Italy will begin testing all new arrivals from China and sequencing the tests for new variants, amid China’s surge in COVID cases, Italy’s health minister said on Wednesday.

“The measure is essential to ensure surveillance and detection of possible variants of the virus in order to protect the Italian population,” Italian Health Minister Orazio Schillaci said.

Several other countries, including Japan, India, South Korea, Taiwan and Malaysia, have already instituted similar requirements, with U.S. officials considering following suit, according to CBS News.

After walking back its strict “zero-COVID” policies this month following a series of mass protests, China has faced a surge in cases that has reportedly overwhelmed hospitals.

While official numbers remain low, an internal estimate suggested that nearly 250 million people may have caught COVID in the first 20 days of the month, the Financial Times reported last week.

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>>> Traders Are Losing Hope in Stock Market After Year of Rolling Losses, Fakeouts


Bloomberg

by Lu Wang

December 23, 2022


https://finance.yahoo.com/news/rolling-losses-fakeouts-squeezing-hope-210156285.html


(Bloomberg) -- For all the ink spilled over its horrors, the 2022 stock market will go into the books as an undistinguished one in the history of bad years. For traders who lived through it, though, certain things have made it feel worse than top-line alone numbers justify, a potential impediment to a quick recovery.

While the 25% peak-to-trough drop in the S&P 500 ranks in the lower range of bear-market wipeouts, it took a particularly jagged route to get there. At 2.3 days, the average duration of declines is the worst since 1977. Throw in three separate bounces of 10% or more and it was a market where hopefulness was squeezed as in few years before it.

This may explain why despite a smaller drawdown, pessimism by some measures rivals that seen in the financial crisis and the dot-com crash. Safety crumbled in government bonds, which failed to provide a buffer for beat-up equities. Buying put options as a way to hedge losses didn’t work either, adding to trader angst.

“There’s less and less people willing to go out there and stick their necks out to try and buy on those pullbacks,” said Shawn Cruz, head trading strategist at TD Ameritrade. “When they start seeing the pullbacks and the drawdowns be longer and be more pronounced and the rallies being maybe more muted, that’s just going to serve to further drive more risk-averse behavior in the market.”

While stocks headed to the Christmas break with a modest weekly decline, anyone hoping for the rebound from October lows to continue in December bounce has been burned. The S&P 500 slipped 0.2% in the five days, bringing its loss for the month to almost 6%.

That would be just the fourth-worst month of the year in a market that at times has seemed almost consciously bent on wringing optimism out of investors. Downtrends have been drawn out and big up days unreliable buy indicators. Consider a strategy that buys stocks one day after the S&P 500 posts a single-session decline of 1%. That trade has delivered a loss of 0.3% in 2022, the worst performance in more than three decades.

Big rallies have also been traps. Purchasing stocks after 1% up days has led to losses, with the S&P 500 falling an average 0.2%.

“There’s an old saying on Wall Street to ‘buy the dip, and sell the rip,’ but for 2022, the saying should be ‘sell the dip, and sell the rip,’” Justin Walters, co-founder at Bespoke Investment Group, wrote in a note Monday.

It’s a stark reversal from the prior two years, when dip buying generated the best returns in decades. For people still conditioned to the success of the strategy — and until recently, many were — 2022 has been a wakeup call.

Retail investors, who repeatedly dived in earlier in the year when stocks pulled back, got burned, with all their profits made in the meme-stock rally wiped out. Now, they’re exiting in droves.

Day traders have net sold $20 billion of single stocks in December, pushing their total disposals in recent months to almost $100 billion — an amount that has unwound 15% of what they accumulated in the prior three years, according to an estimate by Morgan Stanley’s sales and trading team that’s based on public exchange data.

The retail army is likely not done selling even with January historically marking a strong month for that crowd, according to the Morgan Stanley team including Christopher Metli. Using the 2018 episode as a guide, they see the potential for small-fry investors to dump another $75 billion to $100 billion of stocks as next year cranks up.

“Retail demand may not follow seasonal patterns as strongly in 2023 given a deteriorating macro backdrop, with low savings rates and a higher cost of living,” Metli and his colleagues wrote in a note last Friday.

The mood among pros is as bleak if not gloomier. In Bank of America Corp.’s survey of money managers, cash holdings rose to 6.1% during the fall, the highest level since the immediate aftermath of the 2001 terrorist attack, while allocation to stocks fell to an all-time low.

In other words, even though this retrenchment is nowhere near as bad as the 2008 crash that eventually erased more than half of the S&P 500’s value, it’s stoked similar paranoia, particularly when nothing but cash was safe during this year’s drubbing.

In part because of the market’s slow grind, once-popular crash hedges have misfired. The Cboe S&P 500 5% Put Protection Index (PPUT), which tracks a strategy that holds a long position on the equity gauge while buying monthly 5% out-of-the-money puts as a hedge, is nursing a loss that is almost identical to the market’s, down roughly 20%.

Government bonds, which delivered positive returns during every bear market since the 1970s, failed to provide buffer. With a Bloomberg index tracking Treasuries down 12% in 2022, it’s the first year in at least five decades where both bonds and stocks suffered synchronized losses of at least 10%.

“There was nowhere to hide for a whole year — that’s a big issue,” Mohamed El-Erian, chief economic adviser at Allianz SE and Bloomberg Opinion columnist, said on Bloomberg TV. “It’s not just returns, it’s returns correlation and volatility that have hit you in a big way. Is it done? No, it’s not.”

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>>> Biden unveils $36B for one of America’s largest and most troubled pension funds


Yahoo Finance

Ben Werschkul

December 8, 2022·


https://finance.yahoo.com/news/biden-unveils-36-b-for-one-of-americas-largest-and-most-troubled-pension-funds-150329041.html


The White House is sending $36 billion to buttress the Central States Pension Fund, one of the biggest and most troubled funds that manages the pensions of over 350,000 union workers and retirees.

The pending announcement on Tuesday comes about 21 months after President Biden promised $86 billion to troubled multi-employer pension funds via a controversial provision tucked inside the American Rescue Plan.

The check from Washington is a note of finality in the decades-long push to shore up these troubled plans, which had fallen on hard times as the blue-collar industries they represent shrank. Critics also charged that mismanagement played an important role in their decline.

"One cannot underestimate the significance of this assistance for basic economic security and dignity for union workers in their retirement years," Gene Sperling, the Biden aide who oversees the enactment of the American Rescue Plan, reportedly told Midwestern reporters Thursday on a conference call.

President Biden is set to make the formal announcement Thursday afternoon at the White House while flanked by figures like Teamster President Sean O’Brien, AFL-CIO President Liz Shuler, and Secretary of Labor Marty Walsh. The effort has long been championed on Capitol Hill by figures like Sen. Sherrod Brown (D-OH) and Rep. Marcy Kaptur (D-OH).

The program is set to ensure solvency for the funds through 2051, but critics say there is no plan beyond that and the fund will likely need another bailout down the road. Sen. Chuck Grassley (R-IA) blasted the program when it was passed, calling it “just a blank check, with no measures to hold mismanaged plans accountable.”

Plans that were 'critical and declining'

A 2017 report found that there were 1,400 multi-employer pension plans in the U.S., covering 10 million people, with around 100 of the plans in "critical and declining" status.

To try to stave off a collapse in those plans, Biden signed the law to send money via a government agency called the Pension Benefit Guaranty Corporation (PBGC), which partially insures the nation’s pensions but had been projected to become insolvent itself.

In total, the Biden administration program is set to provide varying levels of assistance to more than 200 distressed pension plans and, according to the White House, help ensure that 2 million to 3 million workers don't suffer benefit losses. A tracker updated by Democrats on Capitol Hill estimates that the program has already doled out money to save over 193,000 pensions.

As for Central States, the PBGC had spent the last year and a half calculating the best award for that large fund, which represents workers primarily in Midwestern states like Michigan, Ohio, and Missouri.

These funds were set up decades ago by both unions and employers with the idea that these unified retirement plans would follow workers from job to job within their industry

But the shortfalls quickly piled up and retirees at the Central States Pension fund — who are mostly Teamsters who held jobs like truck driving, construction, and food processing — had been facing possible benefits cuts of 60% or more.

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>>> Paul Volcker’s Historic Mistake


BY JAMES RICKARDS

DECEMBER 12, 2022


https://dailyreckoning.com/paul-volckers-historic-mistake/


Paul Volcker’s Historic Mistake

I’ve frequently said that forecasting Fed policy is easy. The Fed actually tells you what they plan to do in advance. This is the “no drama” Fed.

All you have to do is listen to what they say and believe them. They don’t want to surprise markets or trigger any unexpected volatility. So they signal in advance and move accordingly.

In reality, there’s a bit more to it than that.

The Fed also signals through leaks to chosen reporters. You need to know which reporters are the chosen ones and what publications they write for. The Fed also rotates to new reporters from time to time so you have to be alert to any shifts.

Still, it’s easy to know what’s coming if you know where to look and who to listen to.

The hard part is knowing when the Fed is on the wrong course (they usually are) and when they will realize it (usually too late). Based on that, you can forecast how much harm the Fed will do and how badly the economy will be damaged before the Fed changes course.

That’s more difficult and the timing can be tricky, but that’s the real art of Fed forecasting.

Sorry, Wall Street

With all that said, the Fed has announced two policies: The first is that they will raise interest rates 0.50% on December 14, just a few days away. The second is that they may continue raising rates for much longer than the market expects.

The market keeps trying to rally on the Fed pivot narrative of lower rates, while Powell keeps trying to steer markets away from that narrative with his speeches.

For example, stocks got a lift on Friday, December 2 when the November employment report showed declining real wages, declining hours worked, and declining labor force participation.

The bulls cheered because that negative bit of news seemed to confirm their view that rate cuts are on the way. But it didn’t last.

Powell has maintained a hawkish stance in a series of four high-profile speeches (August 26, September 21, November 2, and November 30), and now through press leaks.

Powell’s Not Done

I believe we should expect at least two more rate hikes. My estimate is a 0.50% rate hike on February 1, 2023 and a 0.25% rate hike on March 22. Those are the dates of the next two FOMC meetings.

There’s another meeting on May 3. It’s too soon to form a good estimate of what the Fed will do in May, but Powell has not ruled out another rate hike then.

But the economy will suffer a severe recession due to the rate hikes, and probably soon. Since the impact of monetary policy on the economy generally has a lag of maybe nine months to a year, we can expect the economy to be impacted by last year’s aggressive rate hikes in Q1 and Q2 of this year.

But once we’re in a recession, rate cuts won’t do any good. Nor will QE. The recession will happen in a context of higher energy prices, supply chain disruption (it’s baaack), and a Chinese collapse. Good luck getting through that. In this scenario, Goldilocks gets eaten by the bears.

The Fed will slam on the brakes on rate hikes and will probably have to cut rates by next June. Why won’t he cut rates sooner?

The Volcker Mistake

Jay Powell does not want to repeat the mistake of Paul Volcker, who also fought inflation with rate hikes, but cut rates too early and came to regret it.

When Paul Volcker was appointed Fed Chair in 1979, he immediately set about ending the worst inflation the U.S. has seen since the end of World War II by raising rates.

Then the U.S. was hit with a recession in January 1980. Unemployment rose to 7%. Inflation was still 14.7% in April 1980, but Volcker was under intense pressure to cut rates in the face of a recession and layoffs.

The Fed blinked. Volcker lowered the fed funds target rate by 7 percentage points.

The recession was over by July 1980, but inflation was not. Inflation at the end of 1980 was still over 12%. The Fed and Volcker had damaged their credibility as inflation fighters.

This became known as the infamous Volcker Mistake.

From there Volcker doubled down. Because of the credibility damage from the Volcker Mistake, interest rates had to go even higher. It was in this stretch that the fed funds target rate hit 20% in June 1981.

This extreme level triggered another recession in July 1981, the second in two years. The 1981 – 1982 recession was the worst since the end of World War II, and interest rates were still 15% in the middle of 1982.

The severity of that recession was not surpassed until the global financial crisis of 2008.

The point is that when Volcker lowered rates in 1980, the job of beating inflation was not done. Inflation went even higher and Volcker had to take even more extreme measures finally to get it under control.

“The Lesson for the Fed Today Is Obvious”

If Volcker had ignored the 1980 recession, inflation might have come down by 1981. Instead, it lasted until 1983 and was only defeated by a recession worse than the one Volcker was initially worried about.

The lesson for the Fed today is obvious.

The Fed first ignored inflation in mid-2021 by calling it transitory. At the time, the Fed’s policy rate was 0%. The Fed’s battle against inflation began in March 2022 with a rate hike of 0.25%.

Inflation rose at an annualized rate of 9.1% in June 2022, 8.5% in July, 8.3% in August, 8.2% in September, and 7.7% in October. In other words, inflation is coming down but at a painfully slow pace.

The problem is that\ Powell may soon find himself facing exactly the dilemma that Volcker faced in May 1980 – the mission to lower inflation is not finished, but higher unemployment and a recession create enormous pressure to lower interest rates.

The question for market observers and investors is: Will Jay Powell blink the way Volcker did in 1980? Will the Fed cut rates in a recession or keep up the inflation fight until it’s over?

Powell Doesn’t Want to Repeat the Volcker Mistake

The answer begins with the fact that Jay Powell does not want to repeat the Volcker Mistake. He knows how that turned out and doesn’t want to end up in the history books for the same thing.

That means rate hikes will continue until March 2023 and possibly May, even in the face of declining growth and falling inflation. The Fed may pivot by June, but it will be too late.

The recession will already be here — and Powell will have some really hard choices to make.

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Looks like a fairly quick bounce back for the stock market after the hotter than expected employment numbers. Normally such 'good' news would be welcome, but in the current inflationary environment the hope was for weaker employment and wages, to help reign in inflation.

However, the prospects for a 'soft landing' and milder recession are enhanced by this strong employment data, as are prospects for corporate profits in 2023. The other aspect is that if - a) the current inflation is mainly coming from the supply side (supply chain disruptions), rather than the demand side, and - b) if these supply disruptions are being gradually ironed out (aided by China's less strict Covid lockdown policies), then inflation can come down even with continued resilience in the US labor market.

Anyway, the 'glass half full' perspective appears to be reflected in the movements of the stock market, at least for now, and barring any blowups from the many economic and geopolitical landmines out there. So it's a 'tightrope walk' as we enter 2023, but with the Fed nearing the end of its tightening (the final rate rise from 4% to 5% coming in Q-1), logic says to be exposed to the stock market, bonds are also attractive and the metals are perking up.




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Gold + silver looking good, and breaking out :o)

The dollar broke near term support and looks like it might re-enter the broad trading zone it had from 2015-2021 (88-104). Right now it's at 105 and falling, so just above the upper boundary (104) of that trading band. Since the markets tend to 'look ahead' 6,9,12 months into the future, it could be anticipating the winding down of the Fed tightening and then eventual pivot (and a recession). In any event, looks like the lower dollar is helping the metals :o)



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The S+P 500 made it through the 200 MA today, so will be interesting to see what happens in Dec. The market might get more momentum going, but I figure we'll at least see a re-test of that 200 MA area (4050). But then 4300 (Aug high) is looking possible by year end.

The DJIA has already exceeded its Aug high, but looks like it could use a breather before long. The S+P 500 has lagged the DJIA, and the Nasdaq has really lagged, and I figure the DJIA could have a sizable pullback while the S+P 500 basically holds its own. Time will tell, should be interesting.

Looks like the next data point to watch is the PCE inflation number tomorrow morning, and then the Nov jobs report on Friday. The CPI number will come on Dec 13 during the two day Fed meeting. Numerous geopolitical events could also torpedo things, though that's been the case all year. Today's big move suggests that the stock market wants to stay in recovery mode unless something big stops it.



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Looking at the current TA landscape -


The DJIA is now overbought based on the RSI (Relative Strength Indicator), which is currently over 71 (over 70 indicates overbought). However, the DJIA reached an RSI of 70 three times in early-mid Nov and kept trucking higher after brief pullbacks. The DJIA is also right near its mid-Aug high, which represents a key resistance level. The DJIA has bounced 20% off its Oct low, but is still down 7% from its all time high in Jan.

The S+P 500 has lagged the DJIA, and even after a 15% bounce off its Oct low, is still down 16% from its Jan high. The RSI is currently 62, and the S+P 500 is nearing a test of its 200 MA (4057).

The Nasdaq has lagged both the DJIA and S+P 500, and has only bounced 11% off its Oct low, and is still down 31% from its all time high from Nov last year. The current RSI is 55. The Nasdaq is above its 50 MA, but still way below its 200 MA.

The Nasdaq looks like a relative bargain, the DJIA appears overbought, and the S+P 500 in the middle. Fwiw, my strategy is to use the S+P 500 as a conservative vehicle, and it contains both DJIA and Nasdaq type stocks.




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Chart-wise, the S+P 500 is close to testing its 200 MA (4059). Thanks to the recent two week sideways consolidation, there is a growing chance that the current move might continue working its way up toward the 4300 area in the weeks ahead (Aug high). Probably some back + fill along the way, which would be good since periods of consolidation help keep the RSI from reaching nosebleed overbought levels (above 70), and can extend the move.

But first we'll see how the market handles the 200 MA. Nice to be seeing some stock profits again, and with the dollar falling there will hopefully be more near term upside for gold/silver. It's been a lousy year for most investors, so maybe some nice profits in Nov/Dec to close out the year :o)



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