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Breadth Thrusts & Bread Crusts: Following Up with the Fed

December 16, 2021
JC Parets

From the desk of Willie Delwiche.

This week's FOMC meeting has received more than its fair share of attention. 

Many are no doubt tired of hearing about it. Some might even mentally paraphrase Thomas Jefferson (in Lin-Manuel Miranda's Hamiliton): Can we get back to prices, please?

Yes, in just a moment.

Yesterday’s headlines announced that the "Fed doubles pace of tapering". Unless you are paying close attention, this probably seems like confusing doublespeak. My friend Joe Kalish (at NDR) put it more succinctly, "Fed Turning Off Liquidity Spigot Sooner." 

The Fed will end asset purchases early next year. Based on current expectations, this will be followed by three 25 basis-point interest rate hikes over the remainder of 2022. Powell was clear to emphasize that this pivot, while compelled by higher than expected inflation, has been made possible by improving labor market conditions and strength in the overall economy. That messaging probably helped stocks shake off early weakness yesterday and rally into the close.

[PLUS] Weekly Sentiment Report

December 15, 2021
JC Parets

From the desk of Willie Delwiche.

Key Takeaway: We have seen some evidence of fear on a shorter-term basis, but still plenty of optimism (and risk) from a longer-term positioning perspective. If we had to sum up the current sentiment backdrop with one data point it would be the AAII survey that shows even split between bears and bulls. Sentiment is neither here nor there and that leaves the door open to a more complete unwinding in optimism at a time of year when the market tends to be filled with holiday cheer. Combine that with increasing headwinds from deteriorating breadth and the trend in earnings revisions turning lower, and the sentiment shifts of 2021 look increasingly incomplete as we move toward 2022.

Sentiment Report Chart of the Week: Earnings Estimates Rolling Over

[PLUS] Weekly Market Notes & Breadth Trends

December 13, 2021
JC Parets

From the desk of Willie Delwiche.

Key Takeaway: A surge to new highs can leave stocks out of breath. S&P 500 at an all-time high while more NYSE stocks make new lows than new highs. FOMC meeting likely to feature Fed grappling with surging inflation.

[PLUS] Weekly Observations & One Chart for the Weekend

December 10, 2021
JC Parets

From the desk of Willie Delwiche.

This idea came up in passing in our ASC+Plus weekly Townhall yesterday. The messy action in Copper looks a whole lot like the messy action in Berkshire Hathaway. After peaking in Q2 both have moved sideways. Copper has been more volatile than Berkshire, moving quickly to go nowhere. They are both up more than 20% for the year, but that has been true since late-April. It’s interesting that neither broke out to new highs in November and neither has (yet) broken down to new lows in December. When we get new highs or new lows from one or both of these bellwethers, we will definitely take notice. Until then it’s more sideways actions, with volatility in search of resolution. 

Breadth Thrusts & Bread Crusts: For Your 2022 Outlook, Take Price Over Projections

December 9, 2021
JC Parets

From the desk of Willie Delwiche.

It’s that time of year again -- a time when our inboxes are overflowing with reflections on the year that was and speculations on the year that will be. 

We used to wait until the year ended before recapping its events and previewing what lies ahead. But these annual outlooks have been showing up earlier and earlier in recent years. In fact, I think I saw my first 2022 outlook piece before the calendar flipped to December...

I read my fair share of outlook pieces and would not go so far as to say they are all useless. I prefer those that identify a few broad themes for consideration over those filled with detailed forecasts and a veneer of precision. After all, we should recognize the limits in the usefulness of even the best prediction pieces.

[PLUS] Weekly Sentiment Report

December 8, 2021
JC Parets

From the desk of Willie Delwiche.

Key Takeaway: Volatility is on the rise and the bulls are in retreat. The recent downside pressure on risk assets has driven investors to take caution. Yet, pessimism remains subdued as volatility was unable to stoke real fear. Now that the market is beginning to rebound, the bullish case needs to prove it deserves the benefit of the doubt. Price needs to justify the risk appetite that still lingers and participation needs to expand. On the flip side, another spike in volatility could woo the bears out of their seats and onto the dance floor. The market finds itself at a critical juncture heading toward year end. The action that unfolds in the coming weeks could well shape investors' approach to risk in 2022.

Sentiment Report Chart of the Week: Despite Some Caution, Investors Still Love Risk

[PLUS] Weekly Market Notes & Breadth Trends

December 6, 2021
JC Parets

From the desk of Willie Delwiche.

Key Takeaway: Indexes stumble as generals see their armies fleeing the field. Bond yields drop below important thresholds. Rising volatility brings focus back to managing risk.

  • Energy slipped three spots (from 4th to 7th) in the large-cap rankings last week, and the sector appears even weaker beneath the surface. It's in the ninth spot on an equal-weight basis, and conditions are deteriorating within the mid-cap and small-cap energy space.
  • Technology remains atop the overall rankings, but relative strength on a short-term basis is from coming from Utilities, Real Estate and Consumer Staples.