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Breadth Thrusts & Bread Crusts: "We Will Do Enough"

September 22, 2022
JC Parets

From the desk of Willie Delwiche.

We don't get to choose the market environment.

Like it or not, the current one is heavily influenced by the Federal Reserve. And the Fed is not alone. Almost every central bank around the world is raising rates – and doing so as quickly as possible.

The Fed raised rates by another 75 basis points at yesterday's FOMC meeting, bringing the year-to-date total to three percentage points of tightening. And they are not done yet. That was the message Chair Powell delivered and that was the message received, reluctantly at first, by the market. 

The four previous times that the Fed raised rates this year, the S&P 500 was up sharply on the day of the announcement, with daily gains ranging from 1.5% to 3.0%. Without those gains, S&P 500 would be down close to 30% YTD (versus the actual 20% decline). That changed yesterday, as the S&P 500 closed down 1.7% (after being up on the day going into the FOMC announcement).

[PLUS] Dynamic Portfolio Management

September 21, 2022
JC Parets

From the desk of Willie Delwiche.

 In our cyclical portfolio, we are shifting our global equity exposure, shortening the maturity of our fixed income exposure and getting out of the way of the break down in gold.

[PLUS] Weekly Sentiment Report

September 21, 2022
JC Parets

From the desk of Willie Delwiche.

Key Takeaway: With last month’s rally behind us and the June lows quickly approaching, investor attitudes are beginning to sour. Bears on the II survey now outnumber bulls for the first time since mid-July, and the Consensus bulls continue to decline. Despite this pessimism, investors have been slow to take action. They have kept equity exposure elevated and equity ETFs actually saw $20B of inflows last week (after the two preceding weeks saw $11B of outflows). Increased pessimism at this point is the most significant sentiment risk for stocks. Investors (and their portfolios) have been bruised by a perceived lack of alternatives to stocks but with short-term bond yields now at their highest levels that could be changing.

Sentiment Report Chart of the Week: Safe Havens Haven’t Been Safe

[PLUS] Weekly Macro Perspectives - Fed & Friends: We Won’t Back Down

September 20, 2022
JC Parets

From the desk of Willie Delwiche.

Key Takeaways:

  • Inflation fight being waged on a global basis
  • Rate expectations have been unanchored 
  • Effects of tighter policy already being felt

Higher rates and tighter central banks are a global phenomenon this year. In fact, the Fed is one of a dozen central banks meeting this week and a majority are expected to raise rates, again. Both the breadth and intensity of rate hikes are pretty much unprecedented. That doesn’t even get into quantitative tightening in the US. The Fed’s balance sheet is 10-times as large as it was two decades ago and has only begun to shrink (the 26-week change just turned negative last month).

Expectations for the Fed are drifting higher. Futures have now priced in 100 basis points of tightening this year than the Fed thought would be necessary when it released its last dot plot (in June). Tomorrow’s updated economic projections and expected path of rates will receive at least as much scrutiny as an actual rate hike that gets announced. 

[PLUS] Weekly Top 10 Report

September 19, 2022
Ian Culley

From the desk of Steve Strazza @Sstrazza

Our Top 10 Charts Report was just published.

In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.

New Lows for Big Tech

When it comes to the most important stocks, it’s all about tech. Mega cap technology companies dominate the US indexes and are in just about everyone's portfolio. The chart below illustrates just how paramount their performance is for the broader market. We have overlaid the relative trend between technology stocks and the S&P 500 with the Nasdaq 100 on absolute terms.

[PLUS] Weekly Momentum Report & Takeaways

September 19, 2022
Ian Culley

From the desk of Steve Strazza @Sstrazza

Check out this week's Momentum Report, our weekly summation of all the major indexes at a Macro, International, Sector, and Industry Group level.

By analyzing the short-term data in these reports, we get a more tactical view of the current state of markets. This information then helps us put near-term developments into the big picture context and provides insights regarding the structural trends at play.

Let's jump right into it with some of the major takeaways from this week's report:

* ASC Plus Members can access the Momentum Report by clicking the link at the bottom of this post.

Macro Universe:

[PLUS] Weekly Market Notes

September 19, 2022
JC Parets
From the desk of Willie Delwiche.

Key Takeaway:

  • Thrust but verify.
  • Fed up with higher rates.
  • Worst six month stretch ever has investors in an exceedingly bad mood.

The June index-level lows are holding for now, but the response to the breadth and momentum thrusts that accompanied the summer rally has been somewhere between uninspiring and historically bad. On the one hand, the S&P 500 was essentially flat in the month following July 28 breadth thrust signal based on a surge in the percentage of stocks making new 20-day highs and even now is not outside the range of what has been seen in the past. The mid-August signal based on surging 40-day momentum, however, has been followed by unprecedented weakness.

[PLUS] Weekly Observations & One Chart for the Weekend

September 16, 2022
JC Parets

From the desk of Willie Delwiche.

This week’s upside surprise in inflation is raising the stakes for next week’s FOMC meeting. While the 10-year T-Note yield is still just below its June peak, yields at the shorter-end of the curve are breaking out to the upside. Leading the way is the 1-year Treasury yield, which crossed above 4.0% this week for the first time in 15 years. Even more pronounced is the pace of its ascent. One year ago, the yield on 1-year Treasuries was just 7 basis points (0.07%). That makes for the largest year-over-year change in yields since the early 1980’s. Investors are unaccustomed to yields moving this high and this fast and that is disrupting both financial markets and the economy. Continued upward momentum in yields could leave the macro situation vulnerable to further deterioration and increase downside risks to equities. Stocks do the best in periods of sustained strength and low volatility, neither of which is present at the moment. 

Breadth Thrusts & Bread Crusts: Playing Possum

September 15, 2022
JC Parets

From the desk of Willie Delwiche.

Something was getting into our grapes. 

That much we knew. We could see the evidence in the mess under our arbor every morning. Our dog was also aware of its presence. But we didn’t know exactly what “it” was – until Friday.

Rather than waiting patiently by the back screen door, the dog was crouched as if he was in starting blocks. He was ready to launch himself onto the scene.

He sprinted to the grape arbor, and after a brief glance at the vines, he raced along the fence. Within moments, he had his prey, shook it vigorously (as he has done in the past), and dropped a limp body. I walked over to get my first glimpse of the intruder. 

Laying motionless at the dog’s feet was a not insubstantial possum.

[PLUS] Weekly Sentiment Report

September 14, 2022
JC Parets

From the desk of Willie Delwiche.

Key Takeaway: The bulls have some heavy lifting as bears pack on the pounds. Yes, last week was impressive, as was the summer rally. But questions about sustainability remain. After all, in the wake of the greatest bull market rally in history in 2020/2021, it shouldn’t be surprising to get the most significant bear market rally ever in 2022. That leaves stocks with an uphill battle in the face of persistent macro headwinds (rising interest rates, dwindling growth expectations, and unrelenting US dollar strength). While pessimism has reached levels indicating opportunity and decreased risk for longs, downside risks remain. An increase in selling pressure could excite the bear camp, prompting a more complete unwind in equity exposure and accelerating interest in bonds even if yields continue to move higher.

Sentiment Report Chart of the Week: Bonds Unloved For Long Enough?

[PLUS] Weekly Market Perspectives - Inflation Fight Not Finished

September 13, 2022
JC Parets

From the desk of Willie Delwiche.

Key Takeaways:

  • Labor market imbalances are fueling a persistent rise in inflation
  • Median CPI hitting new highs means inflation has not peaked 
  • Equities will need to reckon with more Fed tightening and higher bond yields

Surging inflation over the past year has always been about more than just planes, trains, and automobiles - how much they cost to purchase and how much they cost to operate. Too much of the focus has been on the inflation outliers like the spike & cooling in used car prices or the surge and collapse in gasoline prices. Those are post-COVID talking points, but not really drivers of the underlying trend in inflation. So while headline CPI and (to a lesser extent) core CPI get the headlines, median CPI continues to trend higher, as it was doing pre-COVID and as it has been doing in recent months.