Stocks rallied sharply on the heels of the FOMC meeting where the market is celebrating the potential rate cuts next month. The Dow gained 249-points, or 0.97%. Smalls caps lagged a bit but still added 0.60%. The S&P 500 made a new all-time closing high while the yield on the 10-year Treasury hit a multi-year low - briefly breaking below 2% yesterday.
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Coming into yesterday with the S&P 500 about 1% from the all-time high, it wasn't too much of a surprise to see it shoot for the high. I just thought we'd see that on the day of the Fed meeting, not the day after, but thinking about it in hindsight, this is an options expiration week, which has a positive bias with specific strike prices in options and futures that are going to try to get hit and hold. It's the week after options expiration that is more likely to see the exhale.
Of course if stocks are down 7 or 8 times out of 10 during post options expiration week, it means that 2 to 3 times they are up so you never know. But with the S&P up 8% in the last 13 trading days, something is going to have to give.... soon.
Oil was up big as was the entire energy sector, helping the S&P 500 to some degree, but of course geopolitical events are the main catalyst there, although there was a lighter than expected inventory report released recently, which is also helping.
I'm no economist but I realize that if interest rates and the dollar move lower, asset prices will rise, but I still question why they are so enthusiastically ready to cut rates when the S&P 500 just hit a new all-time high, the credit market (HYG) is at an all-time high, the unemployment rate is near historic lows, and there's a chance a trade deal could come before the next Fed meeting. I know the president has been pressuring Powell. Is that it?
More things that make you go "hmmm" regarding not trusting the new highs in stocks... The safety plays of bonds and gold are also making multi-year highs, as is the defensive utility sector. By the way, the VIX was up 3% yesterday - a day that saw the Dow up 249-points and the S&P at a new high?
With the next Fed meeting still 6 weeks away, and the market pricing in a series of rate cuts already when we haven't had any yet, so many things can happen in the interim so it will get messy if we have to put that toothpaste back in the tube if something goes wrong.
The S&P 500 (C-fund) has now recaptured all of the losses amassed in May. Both moves were quite dramatic and this is certainly not a trending market, but rather an oscillating one, and the S&P 500 is at new highs, but also at levels that failed several times going back to early 2018. You heard my arguments above about why things may have gotten too hot given the circumstances, but there's something to be said for momentum, and if you decide to stand in front of something with this kind of momentum, you better be right.
The DWCPF (S-fund) is still below its all-time highs as small caps have lagged this year. Concerns of slowing economic growth would be a concern here more than the large caps, but interest rate cuts do tend to favor small caps, so perhaps the leadership role will change in the second half of the year?
The Dow Transportation Index finally closed back above the moving averages that we have highlighted as resistance for days now. It was almost a must given the condition of the broader market, but the key will be whether or not it can hold for 3 to 5 days.
The dollar took a big hit again yesterday on the Fed's dovishness and loosening of monetary policy. That helps commodity prices, but in our TSP, it's the I-fund that could benefit most if the trend continues.
The EFA (I-fund) was up 0.88% and again, the dollar's weakness helped.
The AGG (Bonds / F-fund) moved to yet another higher high as yields followed the Fed down. So much for that upper (red) resistance holding Now there's a new, steeper rising trading channel working (blue).
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
Thanks for reading. Have a great weekend!
Tom Crowley
Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
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Coming into yesterday with the S&P 500 about 1% from the all-time high, it wasn't too much of a surprise to see it shoot for the high. I just thought we'd see that on the day of the Fed meeting, not the day after, but thinking about it in hindsight, this is an options expiration week, which has a positive bias with specific strike prices in options and futures that are going to try to get hit and hold. It's the week after options expiration that is more likely to see the exhale.
Of course if stocks are down 7 or 8 times out of 10 during post options expiration week, it means that 2 to 3 times they are up so you never know. But with the S&P up 8% in the last 13 trading days, something is going to have to give.... soon.
Oil was up big as was the entire energy sector, helping the S&P 500 to some degree, but of course geopolitical events are the main catalyst there, although there was a lighter than expected inventory report released recently, which is also helping.
I'm no economist but I realize that if interest rates and the dollar move lower, asset prices will rise, but I still question why they are so enthusiastically ready to cut rates when the S&P 500 just hit a new all-time high, the credit market (HYG) is at an all-time high, the unemployment rate is near historic lows, and there's a chance a trade deal could come before the next Fed meeting. I know the president has been pressuring Powell. Is that it?
More things that make you go "hmmm" regarding not trusting the new highs in stocks... The safety plays of bonds and gold are also making multi-year highs, as is the defensive utility sector. By the way, the VIX was up 3% yesterday - a day that saw the Dow up 249-points and the S&P at a new high?
With the next Fed meeting still 6 weeks away, and the market pricing in a series of rate cuts already when we haven't had any yet, so many things can happen in the interim so it will get messy if we have to put that toothpaste back in the tube if something goes wrong.
The S&P 500 (C-fund) has now recaptured all of the losses amassed in May. Both moves were quite dramatic and this is certainly not a trending market, but rather an oscillating one, and the S&P 500 is at new highs, but also at levels that failed several times going back to early 2018. You heard my arguments above about why things may have gotten too hot given the circumstances, but there's something to be said for momentum, and if you decide to stand in front of something with this kind of momentum, you better be right.
The DWCPF (S-fund) is still below its all-time highs as small caps have lagged this year. Concerns of slowing economic growth would be a concern here more than the large caps, but interest rate cuts do tend to favor small caps, so perhaps the leadership role will change in the second half of the year?
The Dow Transportation Index finally closed back above the moving averages that we have highlighted as resistance for days now. It was almost a must given the condition of the broader market, but the key will be whether or not it can hold for 3 to 5 days.
The dollar took a big hit again yesterday on the Fed's dovishness and loosening of monetary policy. That helps commodity prices, but in our TSP, it's the I-fund that could benefit most if the trend continues.
The EFA (I-fund) was up 0.88% and again, the dollar's weakness helped.
The AGG (Bonds / F-fund) moved to yet another higher high as yields followed the Fed down. So much for that upper (red) resistance holding Now there's a new, steeper rising trading channel working (blue).
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
Thanks for reading. Have a great weekend!
Tom Crowley
Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
