NYSE and the status of world markets

[DaveTrade]

Here is one of those sporadic posts, I'm going back to my first post on this thread because I think it's important. I've just copied this from the website link in my first post;

NYSE BULLISH PERCENT

Welcome to the New York Stock Exchange Bullish Percent Index (BPI) page -- a free investing resource from True Market Insiders.

The NYSE BPI chart, above, updates daily. We update the commentary whenever the NYSE BPI signals an important change in the stock market.


September 2, 2021 ~ Chris Rowe

This Recent Change Is: A reversal from an O-column to an X-column. This means the direction of the indicator is UP. It means the most recent trend is bullish, with demand in control of the market. More and more stocks moving to buy signals (breaking above resistance levels).

Date of Change: September 2, 2021.

Number of Days Since Previous Change: 49 days

*******

This is going to be a confusing one, for some people.

VERY LONG-TERM: The underpinnings of the very long-term global financial market position -- the VERY BIG picture -- are very bullish. Of course we can have swings up and down in the next smaller picture which is the...

LONG-TERM: You can see, in the NYSE BPI, the "sell signal" which is lower lows than the most recent O-column made.

INTERMEDIATE-TERM: We have reversed up where demand is in control. We will see if the intermediate-term bullish trend can continue up and then create a confirmation of a bullish long-term trend but that still has yet to happen. Therefore, even though we are seeing intermediate-term bullishness and can run some bullish plays here, we must be aware that the long-term trend hasn't yet repaired.

That means, we aren't super convinced there will be bullish followthrough without a big sell-off to "wash out" the scared money, which would be a painful but healthy thing for the bulls in the long-term.

WHAT'S THE SIGNAL?

What we are seeing is an intermediate-term move higher, which tells us demand has taken control of the stock market -- for now. The column change to X's means the intermediate-term (weeks to months) breadth has gotten significantly stronger and we'll look for followthrough into the larger, long-term, trend.

Until then, the longer-term signal (months to years) remains in question. It's critically important that investors understand this. And know this isn't some tea-leave reading that tells us what may happen int he future. It's exactly what is currently happening right now.

The longer-term signal is actually bearish, where more and more stocks have been participating in the downside moves of the stock market while fewer and fewer stocks are participating in the upward moves in the stock market.

With that being said, the majority of stocks are in fact bullish. If this seems confusing, reread what I wrote and understand the difference between the fact that most stocks look bullish while the recent trend is a weakening one.

I circled another time when the NYSE BPI looked similar to today's pattern, which was back in the summer of 2018.

That was followed by a huge market decline, circled in blue.

It was devastating for short-term investors and tough for long-term investors to endure. We aren't saying history will repeat because we don't predict/forecast and it might not repeat itself but when we consider the probabilities... consider this a tornado watch on an otherwise beautiful day.

You can create a Bullish Percent Index for any group of stocks, like the 500 stocks in the S&P 500, the 2,800 New York Stock Exchange stocks, or the stocks that comprise sectors of the stock market like the Semiconductors sector or the Textile & Apparel sector.

What's important, now that we've covered the general market risk and condition by viewing the NYSE BPI, is to have a strong focus on the sub-sectors of the stock market. We analyze the 41 sub-sectors and decide which ones should be bought by looking at the BPIs for each sector, and the Relative Strength of each sector. This is done using the Sector Prophets Pro platform.

We love this "granddaddy of all technical indicators" (the BPI) because it's basically where we got the name of our firm: "True Market Insiders". It shows us the TRUE MARKET, while popular moving averages like the S&P 500, Dow Jones, NASDAQ, NYSE Composite, etc. can be very deceiving. For example, popular market averages has been breaking new highs all year even though stocks have actually been very weak.

The deception we've seen in 2021 is the biggest deception I've ever seen in an up market (it's very common at market lows). To describe this deception in my classes, I typically reference the deception in the second half of 1998, when the major averages continued to break highs, while most stocks were actually trading lower. I'll have to start referencing 1998 and 2021, going forward.

We are disciplined technical analysts and so we don't predict or forecast. But I will point out that, although the current intermediate-term market condition is bullish (net of more and more stocks breaking highs) the long-term picture is bearish until we see more bullish confirmation.

But the biggest longest-term trend, which can be seen in the global financial markets (including U.S. stocks, International stocks, Commodities, Fixed Income, Currencies and Cash), paints a very bullish picture. It's just that the next smaller trends might include several months of decline before reversing back up and continuing the biggest trend higher.

A BIT ABOUT THIS INDICATOR

The New York Stock Exchange BPI is, as I mentioned, the granddaddy of all technical indicators. It can tell us a lot about the stock market from the current risk to current direction of strength (whether the demand side or the supply side is getting stronger). The indicator as a whole gives us longer-term guidance. But there's a longer-term picture and an intermediate-term picture.

I'll sum that up very quickly and clearly for you, and in today's context.

THE POINT AND FIGURE CHART STYLE WE VIEW IT ON: The bottom shows the years (visible: 2014 - 2021). The numbers within the chart (within the X's and O's) represent what month it was when that box was filled.

When it's going up in a meaningful way (current settings are 2% box size), X's are drawn on the grid, creating an "up-column" of X's. When it reverses back down (in this case, by more than 6%), we move to the next column over to the right and start drawing O's, one below the next, creating a down-column. It's that simple.

We only plot the chart when there's significant up or down movement so it actually stays the same more often than it changes. Some years are more active than others, which is why you see some years have a few column changes and others have many.

 

[DaveTrade]

 

[qldfrog]

View attachment 130851

I follow with interest but not sure i can add much of interest.

 

[KevinBB]

Here is one of those sporadic posts, I'm going back to my first post on this thread because I think it's important.

Hello @DaveTrade

Totally agree with you. The NYSE Bullish Percent has a long history, and I've been following it, on and off, since Chartcraft and Dorsey Wright popularised the concept quite a few years ago.

The indicator has gone from above 70% to below 70%, and according to the Dorsey Wright reading, this gives the market a "Bear Alert" status. Going from above 70% and breaking a previous bottom changes this status to "Bear Confirmed".

The upshot isn't that we should all go to cash, but, again in Dorsey Wright and US football terminology, we should have the defensive team on the field playing the game for us.

KH

 

[DaveTrade]

Hello @DaveTrade

Totally agree with you. The NYSE Bullish Percent has a long history, and I've been following it, on and off, since Chartcraft and Dorsey Wright popularised the concept quite a few years ago.

The indicator has gone from above 70% to below 70%, and according to the Dorsey Wright reading, this gives the market a "Bear Alert" status. Going from above 70% and breaking a previous bottom changes this status to "Bear Confirmed".

The upshot isn't that we should all go to cash, but, again in Dorsey Wright and US football terminology, we should have the defensive team on the field playing the game for us.

KH

You have a good understanding of the indicator KH, for those that don't, KH is saying that we are currently 'Bear Confirmed' because the last column of O's has gone lower than the previous column of O's.

Hope you like the website with it's narrative.

 

[DaveTrade]

This post outlines some significant issues that will have an impact on the US markets going forward.

Why the Bull Market Could End in November

Facebook’s back online and stocks are rising once more.

In short, everything’s back to normal.

Even Frances Haugen’s testimony to Congress (delivered this morning) was unable to keep bulls restrained for long. The market opened for a moderate gain before roaring through noon. Tech led the way with Dow industrials following closely behind.

Bulls can thank Senator Joe Manchin for the late morning rally after saying that he was warming up to President Joe Biden’s social spending plan.

"I'm not ruling anything out," Manchin told CNN reporters, referencing Biden’s $1.9-$2.2 trillion price tag on the bill. Manchin previously said he would go no higher than $1.5 trillion.

It’s no secret that the market has responded very positively to government spending since the start of the pandemic. By telling reporters that there’s a chance of a deal getting done near $2 trillion, Manchin reinvigorated buyers. He also stoked bullish enthusiasm with his comments on the debt ceiling.

“We just can't let the debt ceiling lapse. We just can't,” Manchin said.

“We can prevent default, we really can prevent it. And there's a way to do that, and there's a couple other tools we have that we can use. Takes a little bit of time, a little bit of – it's gonna be a little bit of pain, long ‘vote-a-ramas,’ this and that – do what you have to do. But we cannot – and I want people to know – we will not let this country default.”

Lawmakers have yet to see a debt ceiling they didn’t ultimately end up raising. As we mentioned previously, though, quantitative tightening will result from raising the debt ceiling due to the Treasury’s recent spending spree.

For those that aren’t acquainted with the US debt ceiling, it’s the maximum limit to how much the US government can borrow to pay its debts and obligations. Whenever that limit is reached, the US Treasury can’t issue any more notes, bonds, or bills.

What it can do, however, is pay for debts and obligations with tax revenue or the Treasury’s saved-up cash balance. As of July 31st, that cash balance was just $442 billion. That was a low number, historically speaking. From June to July, it plummeted by $398 billion.

As of October 1st, it sat at a meager $132 billion.

Typically, the US Treasury never needs to draw from its cash balance to pay the bills. It just issues new debt to meet its financial obligations.

For the US economy, the practice of issuing new debt usually doesn’t have any significant impact. The amount of money the Treasury spends (which adds cash to the economy) is offset by the debt issued (which removes cash from the economy).

As a result, no liquidity is added nor removed.

But more recently, the Treasury has run into a bit of a problem with this model due to the debt ceiling. It ended up slowing down debt issuance as the debt ceiling rapidly approached, which forced the Treasury to draw from its cash balance to pay for things instead.

And because less debt was being issued (while the cash balance was being spent), this acted as quantitative easing. Cash was effectively being injected directly into the economy by the Treasury without the issuance of debt to soak it back up. This applied serious pressure to short-term rates and was to blame for the negative rates in the repo market.

Lawmakers are expected to raise the US debt ceiling this month like Manchin said they would. And when they do, the Treasury will issue hundreds of billions of dollars in new debt (which sucks liquidity out of the economy), almost certainly outpacing spending (which injects liquidity into the economy) by a wide margin.

We talked about this last month. Now, though, with a potential $2.2 trillion bill looming overhead, the tightening could get a whole lot worse. Even if the majority of the $2.2 trillion comes from taxes, there’s still likely to be several hundreds of billions of dollars raised by new Treasury debt issuances.

This will result in a significant source of QT, right around the same time corporate earnings hit and when Wall Street expects the Fed to finally start tapering its asset purchases.

Does that seem like the kind of macroeconomic backdrop that will help extend the bull market? Probably not. That’s not to say bulls won’t make another attempt to hit a new all-time high.

They most likely will. Every monthly dip this year has been filled by opportunistic buyers.

But the next correction could very well be the final one due to a set of truly “market wrecking” conditions converging, and all at roughly the same time.

 

[KevinBB]

Hello @DaveTrade

I don't know if you have noticed, but the NYSE BP has turned down. They haven't written it up as yet, but the chart shows the turn. It hasn't broken the last low, but one more good down day should do it again.

KH

 

[DaveTrade]

I don't know if you have noticed, but the NYSE BP has turned down. They haven't written it up as yet, but the chart shows the turn. It hasn't broken the last low, but one more good down day should do it again.

Yes I see that KH, I do hold a down bias at the moment by this level of volatility is making me feel unsure about my view. It's a learning experience for me at the moment, I'm just glad that I went to cash.

 

[KevinBB]

Yes I see that KH, I do hold a down bias at the moment by this level of volatility is making me feel unsure about my view. It's a learning experience for me at the moment, I'm just glad that I went to cash.

When the chart looked like this (Bear Confirmed), Dorsey Wright used to recommend that their clients (mainly financial advisors) protect their portfolios, and their favourite method was using options. I'm the first to admit that I don't know anything at all about trading options, so I haven't done anything like that.

For diversification, I do have a small futures portfolio, and that should help a little. The Futures portfolio is currently neutral equities.

I certainly am more cautious, too, but my personal view is that it may be a bit early to go to cash (famous last words). I don't know anything about your investment or trading style, but for me cash isn't a good option at the moment. I am a firm believer in the "time in the market" theory. Over the last year or three I've been building up IOZ (I am the #1 world's worst stock picker, so an index ETF works for me), and I don't plan to sell any just yet. In fact I added some yesterday (6/4/21) as part of my accumulation plan.

My biggest fear with going to cash is missing out on any rebound. I've missed out on plenty in the past, so this time I'm hanging on to whatever there is to hang on to. So far ...

KH

 

[DaveTrade]

I'm the first to admit that I don't know anything at all about trading options

I'm still learning about options and how best to use them for different trading methods. At the moment all my trades are experimental with a small trading account, I'm preparing myself for when I sell a property in about six months when I'll have that money to work in the markets. Years ago I traded futures and I know how stops can be blown away so in my retirement I've decided that options will the best way to control risk. With options you can do more than just control risk, you can define it.
Using options to hedge a stock position is the most basic type of option strategy, not too hard to learn. If there is nothing about it on this site I could put something into a thread, do you think others on this forum would be interested?

 

[over9k]

Hey @DaveTrade You'll find a lot of discussion of the U.S markets in this thread: https://www.aussiestockforums.com/t...cations-of-a-sars-coronavirus-outbreak.35169/

 

[KevinBB]

@DaveTrade I understand what you say about options, and understand the theory, but just don't know how to trade them as a trader. I don't know or understand the trading terminology. However, the biggest reason that I have no interest in options at the moment is my perception of the lack of liquidity in the Australian options market. I have searched before, and there never seems to be any quotes on the screen, even for what I would think would be the popular XJO options. The US market is fine, heaps of liquidity there.

For me the better alternative is to go short an extra US Dow futures contract(s) as a hedge against the value of my Australian equity investments, should I feel the need to do so. At least I understand this method.

KH

 

[DaveTrade]

The bulls are back;

Is the "October Dip" Already Over?

The debt ceiling has been lifted and so too have stocks. All three major indexes gapped higher at the open this morning before climbing further through noon. Tech led the way once more while Dow industrials followed closely behind.

Analysts pointed to the short-term debt ceiling deal as the reason for today’s bullish surge. Senate Majority Leader Chuck Schumer expects to have an agreement finalized by this afternoon.

“I have some good news,” Schumer said.

“We have reached agreement to extend the debt ceiling through early December, and it’s our hope that we can get this done as soon as today.”

If Schumer’s right, there won’t be a government shutdown. Historically, though, shutdowns haven’t really hurt stocks in a meaningful way.

Instead, the majority of government shutdowns have actually had a positive effect on the market dating back to 1982.

Regardless, bulls seemed relieved that Congress could have a deal done sometime today.

“Everyone blinked yesterday, as it became clear — once again — that the politicians, the Federal Reserve and the country’s business leaders will never allow the debt ceiling nonsense to threaten a U.S. default,” Greg Valliere, chief U.S. policy strategist at AGF Investments, said in a note.

Every time the debt ceiling draws near, the government ends up raising it. Today’s news wasn’t all that surprising, relatively speaking. But for the market, it may as well have been bullish “manna from the heavens.”

"The debt ceiling is one of many factors right now that we think are causing these gyrations in the markets. Certainly, the market will take some comfort when there is a deal when it is more formalized," said Yung-Yu Ma, chief investment strategist for BMO Wealth Management.

Simply put, dip-buyers were seeking a reason to get long again. Lawmakers gave them one this morning. To sustain the bullish momentum, however, investors may need additional good news.

"Markets are looking for some resolution, or at least an end in sight to the supply chain issues, the inflation pressures that are building," Ma explained.

"The markets are also starting to look toward the November meeting of the Fed, and hoping that the Fed is not going to show excessive increases in future interest rates as well [...] So, several things are going on."

The ongoing supply chain problems are unlikely to get resolved any time soon, though, as energy prices continued to soar. US crude oil futures shot higher again after the US Energy Department said it had no plans to tap into the Strategic Petroleum Reserve (SPR). On Wednesday, Energy Secretary Jennifer Granholm threatened to sell 60 million barrels of oil (drawing from the SPR) to bring oil prices lower.

Today, she decided against selling those barrels according to an Energy Department spokesperson. US crude erupted in response. If oil prices keep rising, supply chain constraints should only tighten further.

But that doesn’t matter; Congress has a deal to lift the debt ceiling for a few months and the bull market is back on. We mentioned last week that the market was primed for another rally. Today, the debt ceiling agreement may have been the trigger.

Even though most investors already knew that the debt ceiling would inevitably be lifted all along.

 

[DaveTrade]

Will the Jobs Report Delay the Fed's Taper?

The September jobs report arrived this morning and stocks traded flat in response. Payrolls only totaled 194,000 last month, falling well short of the 500,000 job estimate. In fact, it was bad enough that some Wall Street firms began to consider adjusting their taper timelines.

“This jobs number could call into question the starting point for taper late this year,” said Jamie Cox, Managing Partner for Harris Financial Group, shortly after the jobs report was revealed.

“There are lots of positives in the report, like an uptick in average hourly earnings, but not enough to sugarcoat the fact the employment picture remains murky with all the Covid related cross currents.”

Unemployment fell from 5.1% to 4.8% despite the massive jobs “miss.” Labor participation, on the other hand, dropped from 61.7% to 61.6%. That means the US labor force shrunk by about 183,000 people last month despite the expiration of unemployment benefits.

Analysts were expecting a major jobs “beat” for this reason. Instead, the labor crisis continued through September. We may see a hiring blitz reflected in the October jobs data as Americans start to run out of cash, but after this morning’s jobs report surprise, it’s anyone’s guess as to what the reported payroll gain will actually be.

The silver lining came by way of an increase in hourly wages. Month-over-month, wages grew by 0.6%, up from +0.4% in August. They’re now up 4.6% year-over-year, matching the consensus estimate. Analysts were concerned that wage growth would stagnate as millions of Americans entered the workforce last month.

Obviously, that didn't happen.

And so, the market wasn't quite sure what to make of the September jobs data. Is the bad jobs report truly bad news for stocks? Or does it mean the bull run will be extended?

The majority of analysts stuck to their guns, insisting that the jobs slump won’t change the Fed’s schedule.

“The result, in aggregate, is likely not enough to knock the Fed off its path to begin the tapering process of its balance sheet later this year,” said Glenmede CIO Jason Pride.

“The Fed has already outwardly stated that they believe the employment test for tapering has largely already been met, and today’s report may not meaningfully change that.”

BMO’s Ian Lyngen felt the same:

“This should be more than sufficient to keep tapering on schedule for the November announcement and we’ll look to the incoming Fedspeak to reinforce this notion,” Lyngen wrote.

“The decline of labor participation rate suggests that as unemployment benefits expired, some workers fell out of the labor participation category […] Overall, a mixed report that does little to shift the macro narrative."

In other words, bulls have the “green light” to continue buying despite the September jobs report’s troubling headline figure. And that’s probably good advice at this point.

The casino won’t close until the taper starts. With Wall Street ready and willing to sidestep the big jobs “miss,” traders are likely to follow suit.

That doesn’t mean stocks will surge through the close today, though. They most likely won’t.

But once the shock wears off, expect the rally to resume. Potentially as early as this coming Monday and maybe even to new market highs by mid-October.

 

[DaveTrade]

I thought throw in a chart that I think is one to watch. The weekly chart shows a high base on a product that is already in short supply worldwide;

I think that we could looking at a move back up to top of this zone and when the time is right, a breakout to the upside;

 

[DaveTrade]

Will Oil Prices Keep Rising?

Stocks traded slightly higher this morning as the market’s recent choppiness continued. Dow companies enjoyed the largest gains while tech shares lagged as inflation concerns lingered among traders and institutions alike.

“We’re seeing major supply disruptions around the world that are also feeding inflationary pressures, which are quite high and financial risk taking also is increasing, which poses an additional risk to the outlook,” said International Monetary Fund (IMF) economist Gita Gopinath in a press release.

The IMF then went on to say that central banks (like the Federal Reserve) need to watch inflation closely and tighten monetary policy if it gets “too hot.” European Central Bank President Christine Lagarde formerly served as the managing director of the IMF.

She said in September that the ECB’s coming taper wasn’t going to be a form of monetary tightening. It was a convenient spin on the truth intended to keep European bulls happy. Now, the IMF is saying that Lagarde needs to get serious about tightening in response to rising inflation.

The jury’s out on whether she’ll take the IMF’s advice. Fed Chairman Jerome Powell certainly doesn’t seem interested in it, either.

Both the ECB and Fed had ample opportunity to prevent the coming inflationary surge earlier in the year. Had they started tapering much sooner, we wouldn’t have witnessed landmark increases in recent price index readings. The Consumer Price Index (CPI) cooled slightly last month, but the Producer Price Index (PPI) roared higher once more.

Eventually, those increased producer costs will be passed on to consumers. Corporations could alternatively “eat” those costs and let them slash into their bottom line, harming shareholders instead.

Investors will soon find out how damaging rising input costs truly were as the next batch of corporate earnings approach.

“There are a lot of headwinds out there as we embark on corporate earnings, and traders will be looking for any and all indications of guidance — especially as the threat of slower growth looms large,” explained E-Trade Financial’s managing director of trading, Chris Larkin.

This has caused Wall Street to revise its Q3 earnings predictions downward.

“Expectations for third quarter earnings have been coming down in recent weeks and that should create some room for upside surprises, which is good for overall market sentiment,” said UBS Private Wealth Management’s Rod von Lipsey.

On the other hand, if companies fall short of their reduced estimates, the resulting disappointment could set stocks up for a sharp correction.

Making matters worse is US crude oil, which remains elevated after weeks of consistent price gains.

"We're definitely freaked out about crude oil prices [...] [and] slightly higher interest rates," said David Bailin, Citi Private Bank chief investment officer.

"But we have to put all of this in context. First of all, interest rates have been abnormally low. Energy prices are high due to excessive demand right now and delivery shortages across Europe and now in China [...] These things will abate. We think it'll take somewhere between three and nine months for energy supplies and for the shipping issues to abate."

Between three and nine months? Does the stock market have that long before another crisis emerges?

Probably not. If rising crude prices and supply chain issues persist for even one more month, a much-feared economic slowdown could smash equities at a particularly bad time. Three more months would be potentially ruinous for bulls, especially if the Fed decides to actually taper asset purchases in November as Wall Street believes it will.

 

[DaveTrade]

It’s Official: Inflation Is Here to Stay

The September Consumer Price Index (CPI) arrived this morning and, contrary to the Fed’s recent comments, inflation looked anything but “transitory.” After slowing for two consecutive months, September saw CPI spike by 0.4% month-over-month (MoM) vs. 0.3% expected and 5.4% year-over-year (YoY) vs. 5.3% expected. That’s the highest YoY headline CPI surge since July 2008.

Energy prices experienced the largest hike among the major CPI categories, rising 1.3% MoM. And within energy, fuel oil costs leaped by 3.9% MoM. Fuel oil costs climbed an eye-popping 42.6% YoY.

In short, energy primarily drove the headline CPI number to a 13-year high. Core CPI (which excludes food and energy) still rose 0.2% MoM, beating the +0.1% estimate.

Curiously, used car prices actually dropped last month according to the US Labor Bureau. Manheim (the world’s largest auto auction wholesaler) reported yesterday that used car prices hit an all-time high in September by comparison.

Is Manheim wrong? It might be. But as a major wholesaler with data gathered directly from the used car market, that doesn’t seem very likely, does it?

It’s much more probable that the US Bureau of Labor Statistics got bad data. Or, that the bureau simply lied about it.

Regardless, investors can expect a nasty revision to September used car prices when the October CPI is released in November, which should boost both core and headline CPI retroactively.

Food prices and housing/rental (called “shelter” in the CPI) also jumped last month to the chagrin of Wall Street analysts, many of whom thought for months that inflation was transitory.

“Much of these inflationary pressures are transitory, but that doesn’t stop them from having a dampening impact on activity. Today’s number, with food price inflation and shelter inflation moving higher, suggests growing pressure on consumers,” said Principal Global Investors chief strategist Seema Shah.

Deutsche Bank’s Matthew Luzzetti agreed when identifying the potential sources of "stickier" inflation.

"The top takeaway is, inflation is still running hot. It's well above the Fed's target," he said.

"I think within the details, the most important point was, rental inflation was the highest we've seen since 2001."

Luzzetti continued, adding:

“I think today's data, at least on the rental front, does tell you that the rise in inflation is probably going to be a bit more persistent than what the Fed had anticipated previously.”

Something else to note is that wages are up only 4.6% nominally on the year vs. headline CPI, which is up 5.4% YoY. The Fed thought this gap would quickly close.

Instead, wages have remained “underwater” far longer than expected. And they might sink lower in October if the long-awaited hiring spree finally arrives, suppressing wages as inflation continues to climb.

Following the February CPI release earlier this year, we warned that the US was on track to meet a stagflationary conclusion by year’s end. We’re not even past Thanksgiving yet and the evidence supporting our hypothesis has snowballed. The Fed finds itself in an extremely difficult position as a result.

Does that mean Fed Chairman Jerome Powell's going to officially announce a taper in November as Wall Street believes? He just might have to in order to take some air out of the “everything bubble” that’s only grown larger with time. In doing so, though, Powell could cause it to "pop" violently, bringing down nearly every asset class in the process.

All while less-permanent sources of inflation (like rising oil) potentially scream higher still.

 

[DaveTrade]

Watch Out for Another Big Tech Rally

Stocks roared higher this morning amid better-than-expected corporate earnings. The Dow, S&P, and Nasdaq Composite all enjoyed significant gains at the open that only grew larger as the day went on.

Financials kicked off earnings season with a resounding “bang” after Bank of America (NYSE: BAC), Morgan Stanley (NYSE: MS), Citigroup (NYSE: C), and Wells Fargo (NYSE: WFC) reported major Q3 “beats.” The banks followed in the footsteps of JPMorgan Chase (NYSE: JPM), which also revealed a standout quarter when it reported earnings Wednesday morning.

Even Walgreens Boots Alliance (NYSE: WBA) got in on the action this morning, rising strongly on the back of an impressive Q3 performance.

But that’s not all:

Treasury yields fell again today, boosting growth-focused (i.e. debt-hungry) tech stocks. It was a nice reprieve for Big Tech shares that sagged in recent weeks.

Weekly jobless claims fell, too, dropping below 300,000 for the first time since the Covid pandemic began.

In other words, it was a massively bullish (and much-needed) morning of trading. Analysts were quick to celebrate the good news.

“So far, the overwhelming majority of large US companies have been able to generate higher profitability despite rising labor costs because sales growth has been so robust. We expect the same to be true in [Q3],” said Mark Haefele, chief investment officer of UBS Global Wealth Management.

The question now is whether things are going "too well" for the US economy and if that could alter the Fed’s monetary policy.

“What we are seeing is an economy that continues to run hot," explained Thornburg Investment Management’s Jeff Klingelhofer.

"Consumers today still have elevated savings, and they’ll be drawing that down in the months to come. And so really, we are absolutely seeing higher wages trickling into the economy [...] The key to watch will be, as the economy continues to heal, as vaccinations continue to increase and businesses open, whether that trend continues.”

Klingelhofer continued:

“We’ll be watching those wage numbers exceptionally carefully. They really are the key to trying to figure out where the Fed goes and whether this inflation is transitory in nature. But at this point, we think it will moderate in the months and quarters to come.”

Thankfully for the Fed, wage growth should slow as hirings soar. The October jobs report (due out in November) could very well show a massive payroll gain for the month now that unemployment benefits have ended. If that happens, it might just be able to keep a lid on rising wages.

On the other hand, prices continue to climb for both consumers and producers, outpacing wage growth. The Producer Price Index (PPI) was released this morning, and in it, investors learned that input costs jumped higher again in September.

Headline PPI grew by 0.5% month-over-month vs. 0.6% expected and 8.6% year-over-year vs. 8.7% expected, falling short of the consensus estimates. Still, the PPI showed that the ongoing surge in producer costs persisted through September and that it's giving no sign of slowing significantly any time soon.

When major American manufacturers start to report earnings later this month, investors will get another glimpse into how much margins have truly slimmed. Clorox (NYSE: CLX) execs shocked shareholders in August when they said that margins had slimmed enough to reduce the company’s 2022 outlook.

Similar guidance could arise as more manufacturing-based companies report in the coming weeks.

For now, though, enjoy the bullish resurgence. Yields seem ready to drop further, which could result in a major tech rally that ultimately lifts the general market in the process.

Especially if earnings from the “softer,” non-manufacturing sectors (like financials) continue to impress.

 

[DaveTrade]

The "Ugly Truth" About Earnings

Stocks traded higher again today as bank earnings continued to impress. This time, it was Goldman Sachs that reported a blowout quarter thanks to the company's massive trading gains. All three major indexes opened higher on the day in response.

“The banks painted a strong and healthy picture of the US consumer,” explained Oanda senior market analyst Edward Moya.

“Wall Street can’t turn negative on the economy after seeing reserve releases, moderating trading revenue, mixed loan growth, and a consumer willing to take on debt.”

It’s much easier to take on debt when rates are near historic lows. The 10-year Treasury yield climbed higher today to 1.57% (+3.62%), limiting growth-hungry tech gains in the process. But the 10-year rate is still down significantly when compared to its longer-term performance.

The latest University of Michigan Consumer Sentiment Survey wounded bulls slightly this morning, too, when it revealed a significant “stagflationary” impulse. Inflation expectations surged to their highest level since 2008 while the current economic conditions index approached its initial Covid low.

Clocking in at 77.9, that’s the second-lowest current economic conditions index reading since 2011.

“When asked to describe in their own words why conditions were unfavorable, net price increases were cited more frequently than any time since inflation peaked at over 10% in 1978-80,” said Richard Curtin, the long-time director of the survey.

Surprisingly, though, September’s retail sales data (also released this morning) showed a major “beat.” Retail sales increased by 0.7% last month, easily surpassing the -0.2% consensus estimate.

“The inflation environment and concerns about supply chains have not put a strong dent in retail sales,” noted BMO Wealth Management’s Yung-Yu Ma.

“Consumers are acclimating to higher prices. So far that hasn’t resulted in a meaningful fall off in demand. But this willingness to absorb higher prices is not unlimited.”

In other words, the slump in consumer sentiment has yet to impact retail sales. But that’s not to say it won’t do so at some point in the near future as the holiday season draws near. October’s retail sales data will be critical in determining the economy’s trajectory heading into Thanksgiving and Christmas.

Most analysts think that a strong earnings season will prevent another sell-off from happening this year. Natixis Investment Managers portfolio manager Jack Janasiewicz believes that’s not only due to a strong crop of earnings, but the fact that quarterly estimates have been trimmed significantly in anticipation of a slow Q3.

"We've had a number of Wall Street strategists come out and call for a correction. If you look at things like the surprise indices, they're all trending lower [...] earnings estimates for the third and fourth quarter have leveled off," Janasiewicz said.

"To me, it feels like the market's leaning bearish. And when we start to think about the buyer power that could come back in when everybody starts to flip positive — earnings might be that catalyst, [and] we could certainly see that upside."

So, will stocks march on to new highs in the coming weeks? It certainly seems like they could, aided by analysts who scaled back their quarterly estimates to produce bigger earnings “beats.”

Even if the reality of the earnings picture is far less bullish than these “surprise reports” would have investors believe.

 

[KevinBB]

I've been keeping these stats for the major Australian market indices for quite some time (many years), but have only just added the major US indices to the stats.

I realise that the Australian and US markets are structurally different, and that the Australian high dividend rate is a factor, but some of these longer term return figures (as at Monday) show why investing in US stocks, and their index ETFs, can be very attractive.

KH