Another rally for the stock market after a stronger than expected jobs report. The Dow gained 204-points and small caps led on the upside. Bonds had a big day as yields tumbled. After a couple of less than stellar jobs report, we got a good one this time so the economy seems to be running on all cylinders, but why is the bond market acting like there's trouble? Are stocks or bonds telling the real story?
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This week's Producer (PPI) and Consumer (CPI) prices reports will be key as it measures inflation. The PPI comes out on Tuesday and the CPI on Wednesday. Last month's reports on October 13 and 14 triggered the start to this current rally.
Last month it was the fact that prices weren't moving up as quickly as had been estimated, easing some inflation fears and sending stocks higher so we are seeing a mixed picture. Is inflating a problem, or not? Is the economy heating up, or not? Should yields be moving down if the stock market is priced for economic growth? Is the bond market or the stock market correct?
The S&P 500 (C-fund) has been up, up, up in recent weeks. It's getting a little hard to watch, like a rubber band that is being stretched to the point of seeing the strands starting to fray. It has been up for 7 straight days, which is only about half of the record for consecutive positive days, but it has been up 9 of the last 10 days, and 16 of the last 18. So, it's overbought, overextended, and arguably overvalued, but there's no rule that says it has to come to an end. There is a confluence of resistance in the 4700 area, but all of the resistance lines are still rising quickly. There are a lot of profits out there and at some point, between now and Thanksgiving, I'd assume we'll see some profit taking.
The DWCPF (S-fund) is in a similar boat, although after breaking out above a long consolidation area in both the DWCPF and the Russell 2000, small caps may have a long way to go, but they won't go straight up every day. That's just not how it works. There are a few downside targets and the higher the index gets, the further away from those targets it gets, and the more likely any pullback could be pronounced. The question is whether it will happen during the top two months of the year for stocks, or after the New Year.
The EFA (I-fund) was up slightly and with the dollar all over the place after the jobs report on Friday, the price the TSP gave us may get adjusted on Monday, and possibly to the upside since the dollar closed near the lows of the day.
BND (Bonds / F-fund) was flying on Friday after the stronger than expected jobs report - which makes little sense. A strong report would normally send yields up and bond prices (F-fund) down, but as we talked about above, something odd is going on in the bond market.
The Dow Transportation Index had such an interesting week after the AVIS earnings report sent it sharply higher on Tuesday, but it calmed down to settle down off of the high, but after Friday's 0.66% gain, it has an incredible week. That's is a good sign for stocks and the economy, as long as that support line near 16,250 can hold.
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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You would think, if the economy is very strong, that the Fed might be considering raising interest rates, but they put it off again. The chart of the 10-year Treasury yield has been building a bear flag, which turned into a bearish head and shoulders pattern, but clearly with the economy heating up and Friday's jobs report putting some icing on the cake, that yields would be moving higher. But that's not the case. Instead, those bearish formations did indeed predict a drop in yields, something that we might be more likely to see if the jobs report had been poor.
So who's right - the stock market, which is performing as if it's all blues skies ahead, or the bond market - whom most consider to be the more savvy investors and traders? Normally they go hand in hand feeding off of each other but now each are telling a different story.
The price of oil, also a good predictor of economic strength, had been pulling back from its recent multi-year highs, but it got a bounce on Friday after holding at the key 50-day average. So it seems to have seen the jobs report as a positive. It is in a mini downtrend right now so it will be interesting to see what happens when it test the top of that descending trading channel near 82.
Obviously our pockets would like to see lower oil prices to get the prices at the pumps down from the current lofty levels. But higher oil prices would be interpreted as being economic strength. Of course there is another component and that is supply, and OPEC recently declined to increase their output despite the U.S. calling for more. That was most certainly a big factor in the rally in oil on Friday.
So who's right - the stock market, which is performing as if it's all blues skies ahead, or the bond market - whom most consider to be the more savvy investors and traders? Normally they go hand in hand feeding off of each other but now each are telling a different story.
The price of oil, also a good predictor of economic strength, had been pulling back from its recent multi-year highs, but it got a bounce on Friday after holding at the key 50-day average. So it seems to have seen the jobs report as a positive. It is in a mini downtrend right now so it will be interesting to see what happens when it test the top of that descending trading channel near 82.
This week's Producer (PPI) and Consumer (CPI) prices reports will be key as it measures inflation. The PPI comes out on Tuesday and the CPI on Wednesday. Last month's reports on October 13 and 14 triggered the start to this current rally.
Last month it was the fact that prices weren't moving up as quickly as had been estimated, easing some inflation fears and sending stocks higher so we are seeing a mixed picture. Is inflating a problem, or not? Is the economy heating up, or not? Should yields be moving down if the stock market is priced for economic growth? Is the bond market or the stock market correct?
The S&P 500 (C-fund) has been up, up, up in recent weeks. It's getting a little hard to watch, like a rubber band that is being stretched to the point of seeing the strands starting to fray. It has been up for 7 straight days, which is only about half of the record for consecutive positive days, but it has been up 9 of the last 10 days, and 16 of the last 18. So, it's overbought, overextended, and arguably overvalued, but there's no rule that says it has to come to an end. There is a confluence of resistance in the 4700 area, but all of the resistance lines are still rising quickly. There are a lot of profits out there and at some point, between now and Thanksgiving, I'd assume we'll see some profit taking.
The DWCPF (S-fund) is in a similar boat, although after breaking out above a long consolidation area in both the DWCPF and the Russell 2000, small caps may have a long way to go, but they won't go straight up every day. That's just not how it works. There are a few downside targets and the higher the index gets, the further away from those targets it gets, and the more likely any pullback could be pronounced. The question is whether it will happen during the top two months of the year for stocks, or after the New Year.
The EFA (I-fund) was up slightly and with the dollar all over the place after the jobs report on Friday, the price the TSP gave us may get adjusted on Monday, and possibly to the upside since the dollar closed near the lows of the day.
BND (Bonds / F-fund) was flying on Friday after the stronger than expected jobs report - which makes little sense. A strong report would normally send yields up and bond prices (F-fund) down, but as we talked about above, something odd is going on in the bond market.
The Dow Transportation Index had such an interesting week after the AVIS earnings report sent it sharply higher on Tuesday, but it calmed down to settle down off of the high, but after Friday's 0.66% gain, it has an incredible week. That's is a good sign for stocks and the economy, as long as that support line near 16,250 can hold.
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Thanks for reading. We'll see you back here tomorrow.
Tom Crowley
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
To get weekly or daily notifications when we post new commentary, sign up HERE.
Thanks for reading. We'll see you back here tomorrow.
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.
