This is the video recording of the September 1st, 2022, Weekly Town Hall w/ Willie Delwiche.

09/01/22 2:00 PM ET

From the desk of Willie Delwiche.

The first eight months of the year have been a grind. 

A mid-month reversal in August took the S&P 500 from a 4% gain to 4% loss for the month and the early breadth and momentum thrusts now seem like a distant memory. Two-thirds of the way through the year and we are on track for the fewest days of more new highs than new lows observed in the past two decades, and 2022 is just ahead of 2020 (and lagging only 2009) in terms of daily swings of 1% or more on the S&P 500. Weakness in stocks this year has been exacerbated by weakness in bonds, as yields have climbed to new multi-year highs. The 60/40 stock/bond benchmark portfolio is down 14% through August.

Welcome to September. If you haven’t heard, it’s the worst month of the year for stocks. Since 1950, only two months (February and September) have been down on average. This is a case were we don’t really need to focus on the exact numbers – the large red bar for September says it all:

From the desk of Willie Delwiche.

Key Takeaway: In July, consumer expectations for stocks dropped to their lowest level since March 2009.  Excessive optimism is clearly not an issue for stocks right here. But bulls need to be resilient if the market is going to move higher. Recent breadth and momentum thrusts are fodder for optimism, but the persistent downtrend in stocks is dampening rally attempts. The latest numbers from AAII, II and NAAIM suggest questions about bullish resolve are well-founded. All have rolled over and are showing increased caution. If that continues, a broader re-set becomes more likely - one in which positioning (which has been resilient) gets more in line with sentiment.

Sentiment Report Chart of the Week: Expectations For Stocks Have Tanked

Among the questions asked in the University of Michigan Survey of Consumers is one regarding expectations about the direction of stocks over the coming year. Specifically it asks about the perceived likelihood that stocks will rise over the...

From the desk of Willie Delwiche.

Key Takeaways:

• Thrust signals are typically reliable indicators of strength
• Lack of risk appetite and rising yields working against stocks
• Without marked deterioration in macro health, we still trust the thrust

The mid-August momentum thrust was just two weeks ago, but it seems longer than that. The S&P 500 has gone from up 4% for the month to down 3% for the month, in the process giving back half of the entire rally off of the June lows. It is possible that the volatility environment produced false signals of strength, but we are not ready to jump to that conclusion. The combination momentum and breadth strength seen prior to the mid-month peak has been a typically reliable indicator that further strength lies ahead for stocks. Two weeks of price action is not enough for me to throw out 40-years worth of data. 

That being said, the market could struggle to display the strength that these indicators have signaled in the past as long as we remain in a risk off environment. Moreover, the...

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.

Stocks Fail at Key Level

A wide variety of risk assets have suffered significant corrective action dating back to last year. As such, we’ve gotten used to looking for logical areas of potential support, or levels where we could expect demand to enter the market.

No levels have provided a better guideline than the prior-cycle highs from 2018. And when it comes to the stock market, no index provides us with a more comprehensive view of the price action than the Value Line Geometric (VLG), shown below. The Value Line is composed of roughly 1,700 components and is designed to measure how the average - or more specifically, the median stock is performing.

As you can see, the median stock is currently rolling over after a successful retest of its 2018 highs. As long as the Value Line is below 595, stocks are likely to remain under pressure.

...

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:

• This week, our macro universe was mostly negative, as 74% of our list closed lower with a median return of -1.48%.
• The Volatility Index $VIX was this week's winner, closing with a 24.08% gain.
• The biggest loser was the Nasdaq 100 $QQQ, with a weekly loss of -4.78%.
• There was a 5% drop in the percentage of assets on our list within 5% of their 52-week highs – currently at 6%.
• 11% of our macro list made fresh 4-week...

Key Takeaway:

• Powell’s tough talk justified by incoming inflation data.
• Slowing growth unlikely to derail Fed’s plans.
• Bull market re-birth struggling with labor pains.

Our bull market re-birth checklist took a step backward but a tough labor does not preclude a successful delivery. Without new complications from a macro perspective, we are willing to be patient and trust the thrust. At the same time, however, so far this year stocks have yet to show that they can sustain strength when yields and the dollar are rising. If the market is taking the Fed at its word, then higher bond yields are likely to be seen this year, in the US and around the world. Japanese yields are again approaching the 0.25% level that the Bank of Japan has targeted as a ceiling for yields. When that happened in Q2, the yen suffered.

Beyond financial market fluctuations, the tough line from the Fed could be tested by economic...

From the desk of Willie Delwiche.

Fighting inflation is job number one for the Fed right now. Jerome Powell made that crystal clear in his remarks from Jackson Hole on Friday. He discussed the deleterious effects of inflation and the risks that come with prematurely claiming victory (and loosening policy). This could lead to more persistence in raising rates, more tolerance of economic weakness, and more willingness to keep rates high for an extended period of time. In this environment, inflation data will be scrutinized more than ever. While inflation expectations get a lot of focus, they are much more closely related to where inflation has been than where it is going. There is an 85% correlation between 5-year CPI inflation and current 5-year inflation expectations. That drops to just 26% when inflation expectations are moved ahead 5 years (so that the inflation data and expectations data are covering the same time period).  If inflation stays high, expectations will become further unanchored. Alternative measures of inflation (like the median CPI from the Cleveland Fed and the trimmed-mean PCE from the Dallas Fed) show that the central tendency for inflation...

From the desk of Willie Delwiche.

During our “Trendlines over Headlines” conversation last week, Patrick Dunuwila and I spent some time discussing seasonal patterns in the stock market. Among the inputs to our cycle composite is the 4-year Presidential Election cycle. The tendency for stocks to make a pre-midterm election low and then see sustained strength in the year between midterms and the Presidential election is well-advertised. The stats around this are pretty amazing. On average, stocks bottomed two months prior to the midterm election and, despite a few close calls, the S&P 500 has been higher one year after every mid-term election since 1950, on average nearly 15% higher.

This is often ascribed to the market’s preference for certainty. When the balance of political power is unknown, stocks weaken. When the outcome of the election becomes more obvious, stocks rally. This is regardless of which party that outcome favors. It’s a plausible story as far as it goes. 

This is the video recording of the August 25, 2022, Weekly Town Hall w/ Willie Delwiche.

08/25/22 2:00 PM ET

From the desk of Willie Delwiche.

Key Takeaway:  It takes bulls to have a bull market. Seeing cyclical sentiment moving from pessimism to neutral in recent weeks has been fuel for the rally off of the June lows. From both a fund flow and survey perspective, investors have been increasing participation since mid-year. But with a robust appetite for Risk On assets still not apparent, the biggest risk from a sentiment perspective is that macro headaches fuel an uptick in pessimism that overwhelms the positive thrust developments of the past few weeks. That could lead to a more complete unwind from a strategic positioning perspective. For now, optimism is on the rise but far from excessive, and that tends to be a sweet spot for stocks.

Sentiment Report Chart of the Week: Households Hold On To Stocks

From a short-term and intermediate-term perspective, volatility in the first half of 2022 fueled fear and pessimism that moved toward historical extremes. From a longer-term perspective, the unwind in optimism...

From the desk of Willie Delwiche.

Key Takeaways:

• Risk On appetite missing from recent rally
• Bond yield momentum waning as financial stress remains low
• Intact dollar uptrend and rollover in copper/gold ratio are equity market obstacles

In the wake of the breadth and momentum thrusts seen over the first half of August, the market seems to be arguing that the path of least resistance is higher as we move into 2023. The macro backdrop almost guarantees that the way forward will be strewn with rocks and roots. The question is whether the obstacles will be significant enough to derail or delay the journey. We will look at several macro-related indicators that could help us anticipate a more or less treacherous road ahead.

Before we get to that, even in the wake of the recent thrusts there is room for further improvement from a market perspective. The turn higher in new highs versus new lows remains tenuous and a robust appetite for risk has been elusive. This Risk Off - Risk On Range-O-Meter compares where the ratios between the...