Here is today’s Youtube video:
Quick update on the recent bond market developments:
Both the 10-year and 2-year treasury yields have made significant moves down today. Manufacturing PMIs missed expectations which is leading to increasing growth concerns for the economy (leading investors to seek protection through bonds).
10 year by gameoftrades_yt on TradingView.com
This is coming in the backdrop of what looks like a rollover in inflation expectations. This perhaps could begin to relieve some pressure off the valuation sell-off we’ve seen in equities (more specifically on the technology sector) and could be the fuel for a considerable counter-trend move.
The question is whether earnings revisions to the downside (fuelled by a slowing economy) could trigger additional market volatility.
This comes as we see the advance-decline line begin to move up while the SP500 has printed a lower low. Divergence with the advance-decline can often mark important reversal points:
Advance Decline by gameoftrades_yt on TradingView.com
Lower bond yields due to a dramatically slowing economy and/or recession are not going to lead to ATH imo. They are a warning sign for stocks, not a predictor of further upside. The only way I see a short term ATH is if inflation declines significantly, bond yields roll over due to dramatically lower inflation and perhaps a FED pivot, but the economy and corporate earnings remain relatively strong. Then we could have a Goldilocks rally. Bonds rolling over due to fear of a recession, a much slower economy and lower corporate earnings is not a fundamentally good story despite the technical.
Important point – we all need to be monitoring breakevens.
It does seem like we are due for a bounce however. Investors seem far too negative, and we do have those divergences. The question is whether that bounce holds and continues eventually to ATH. for that I think we would need to learn that inflation is significantly reducing, the FED becomes less hawkish, and the economy, employment and corporate earnings remain relatively strong. Right now every bounce is sold the next day. What changes that?
A repeat of the taper tantrum could change that. FED has taken bold hawkish stance, which has appropriately deflated financial assets (they are fine with that to an extent). If the economy starts to tip (which it’s looking more and more like it might), that could be the change back to a dovish FED, and lead to a substantial rally or ATH.
The FED put is dead, at least for the short term. The FED is going to fight inflation. That’s the thing to watch. If stocks go down but inflation does not, the FED is not imo going to back off rate increases. The only other thing the FED is concerned about is unemployment. And the comments I’ve heard is they think the job market is too hot and could cool off a little as wages keep rising.
We don’t disagree on comments made.
Ultimately, the FED is and has been structurally dovish for the past 25 years because they will do anything to ward off a Depression (they are all Depression scholars) – which is why they “erred” to the other side – inflation.
Absolute wages are rising, but we have negative inflation-adjusted wage growth. And, the unemployment rate is still strong, but the layoffs are now coming in droves (reminds me of 2006)….first small tech companies, and now the Large Caps. Consumer spending starting to tip. We are on course for a recession next year. Economic sensitivity has been growing for the last two decades, and now our economy can’t tolerate much tightening before it starts to tip. As growth slows and the layoffs increase, the FED will start to sweat, and do what they love to do – stimulate. Pavlov will once again salivate. If the market thinks there will be low growth vs negative growth and somewhat contained inflation of 5% vs 8% (i.e. stagflation), I think the market can rally on that premise.
Peter’s bounce call (we’ll see about ATH) is a good one IMO.
I do not see the FED pivoting when inflation is still at 5-8%. I could see a rally, but the impetus won\’t be the FED pivoting with inflation still 5-8% and the economy merely slowing
What changes that? The fed stepping out of the way is one thing. If we do see the fed slowing down rate hikes due to moderating inflation and then indicating their target for neutral rate is around 2.5% on the funds and not needing to hike above that…we rally off that news. I don’t see us at ATHs for the rest of this cycle but companies now are having to get lean and more efficient vs. The time since covid lows and stimulus made business easy. That will result in better ran companies sooner than later with higher returns. So that plus a fed out of the way or accommodating will lead to new ATHs
David agree that has to be the scenario required for a significant rally. That the FED backs off due to moderating inflation. The FED backing off due to a recession, or slowing economy that affects corporate earnings, results in a market that struggles to rally as it prices in lower corporate earnings. Inflation is the key thing to watch. Nothing much good happens without that moderating first. And if it\’s moderating because the economy is going into the tank, that\’s not short term positive for stocks.
Are we seeing a manipulated market here to drive down prices for the big banks like Goldman Sachs and JP Morgan to gobble up? The reason I say this is due to those very rare 7 straight down weeks. If they can manipulate gold and silver for the FED I am pretty sure they feel infallible enough to manipulate the other markets. And also got a great bottom for crypto at the same time. Just a thought.🤑
My neighbor is pretty damn high up at Deutsche Bank and she said there will not be a recession at this time. I’m not sure what that’s worth….
The market is always manipulated. Are the big banks talking up recession and/or stagflation so they can buy as they get retail investors to sell? I wouldn’t be shocked. You can’t really trust what they big banks say as they have a vested interest in taking the other side of the trade.
No way, nobody is manipulating anything, those kind of things don´t exit. Oh wait, maybe they do…..
Poll: who is going to sell at 4300-4500 on SPX?
I was thinking of doing that but holding my BTC if it does not go up to 50K+ by that time. I think BTC maybe shaky for a while but these are good stacking prices.
If you sell, what are you rolling into? Gold?
Is all the doom and gloom already priced into the market?
Hi Peter, I think I\’m missing something here with your asset ratings. SP500 is still short term Buy and intermediate term Weak Buy. I became a member last year because I was under the impression we would be alerted to a top in the markets so we can prepare to sell down. But this year I\’ve only seen notifications for good entry points based on risk/reward. I feel we have missed the opportunity to sell high and then buy back at lower prices. Is your investment strategy to dollar cost average without ever selling?
Let\’s play a guessing game. Predictions for year end 2022 in the following metrics. 1. Inflation rate yoy? 2. 2 and 10 year treasury rates? 3. S&P 500? 4. Unemployment rate? 5. S&P 500 earnings for 2022 (bonus for earnings 2023)? 6. Recession in 2022?
1. inflation 3.5-4.0%
2. 2 year 2.75%, 10 year 3.2%
3. S&P 500 4300
4. Unemployment rate 3.8%
5. S&P earnings 220
6. No recession this year and if there is all those guesses are wrong 🙂
Those are quite optimistic predictions Charles, I hope you will be right. If you expect the inflation to come back to 3.5-4%, shouldn´t the 10Y yield be lower than 3.2%?
I do expect the 10 year to be higher than the 2 year, so if the 2 year is around 2.75% I\’d expect the 10 at about 3% to 3.25% and probably at the higher range. I personally wouldn\’t be surprised to see the 10 at 3.5% in 2023 if inflation stays high and if the economy avoids a significant slow down.
How about tutorials on how to use the indicators and strategies on the interactive platform?
Summary: we might be near an equities upturn, or we might not, or maybe a downturn, or maybe some sectors will go up and others down. Doesn’t appear to be an actionable analysis.
GOT, I would be interested to see what the members expectations are for the remainder of this year. Is it possible to setup a poll on this site i.e. similar to AAII bullish/bearish sentiment?
I like the summaries at the end of the posting that hits the key points. Missing on this one.
It’s a good time to start accumulating long positions on uranium miners is about the only clear move I can assess at this time.