Stocks closed off their highest levels of the day yesterday but it was basically the same old story as the melt-up continued. The Dow added 109-points and, other than a strong dollar holding back the I-fund yesterday, most of the US indices closed higher. Bonds and the F-fund were up as well as yields continue to slip off of the early July spike higher.
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After another rally in the stock market we are starting to see some influential earnings reports roll in, and after a disappointing miss reported from Goldman Sachs yesterday, their stock rallied 1% on the day. That's the environment we are in.
After the bell yesterday a few of the early anticipated earnings came out after the bell yesterday from Tesla, Netflix, IBM, and United Airlines, it was a mixed bag in after hours trading. United performed best and was up about 4% while Netflix was down about 5%, so no major moves yet, although this was early on before the conference calls kicked off.
Price action pays so indicators, charts, and data are just clues to what may happen, but recently the clues have done little to imply the kind of strength that we have been seeing in stocks in recent months. The rally has been very influenced by the hype of Artificial Intelligence, and history tells us that a new promising story can be a powerful influence for years.
If you are in stocks and making money, more power to you. As I said, it is what is paying right now. But I'll play devil's advocate again perhaps to give the bulls a reality check who may be locked in their basement, like Scrooge McDuck, counting their statement gains.
First off, one of the old adages on Wall Street is "Don't Fight the Fed." If the Fed is cutting interest rates, or they are already low, the path of least resistance historically for stocks is up. If the Fed is raising interest rates, the path of least resistance is down. The Fed will have at least one more hike for us next week, then it will be wait and see, but a 5% plus interest rate has a different impact on the economy and earnings than a 0% rate.
How about the Fed's Balance Sheet which, when they were raising the made money easily available, and it stimulated the economy. They called that QE or quantitative easing. It also has a negative impact on inflation as we saw last year. Now they are reducing the balance sheet (quantitative tightening) with the intent of easing inflation and that may not stop the stock market from going up, but when easy money is pulled, liquidity becomes an issue and it tends to be tougher for financial markets.
How about the inverted yield curve? The stock market reacted negatively last year on this normally troublesome development as it almost always suggests a recession is coming. This year investors are yawning at this chart, which is one of the most inverted and longest stretches of being inverted that we have seen in many decades. Is it "different this time?"
I don't have any specific analysis on this; it's just an observation, but I noticed that China's Shanghais Index, which has been following along with the US market for the last couple of years, is suddenly rolling over and is now below its 200-day EMA while the US market is in this melt up mode. Does it mean anything? I don't know. China is not part of the I-fund but obviously they are a major economic power and can influence the global economy.
Again, it's hard to argue with what is happening. As I also way say, the market tends to lead the headlines, and perhaps 6 months from now we will understand more why this market is acting the way it is today, but clearly there are some issues as I mentioned that normally get in the way of a bull market.
Earnings will continue to pour in but it's next week's FOMC meeting and the Fed's guidance on interest rates that will set the tone for the rest of the summer, plus the big FANG type of stocks will also start reporting next week and into August.
The S&P 500 (C-fund) inched up yet again as the bears continue to hibernate. The question is if they will come out next week when the Fed and earnings are making headlines, or are they just going to sleep all summer? The chart looks very strong, but clearly extended while testing or busting through resistance with each new move higher. The index is now 13% above its 200-day EMA, and 5% above its 50-day EMA, which is quite extended.
EFA (I-fund) was flat on the day as the strength in the dollar held it back. The dollar filled one open gap yesterday during its rally, but there's one more to go, and with the two large gaps below on the EFA, perhaps we'll see a Fed driven gap filling party next week here.
BND (F-fund) had a nice day as yields fell again, but there's a lot of overhead resistance on this chart and a large open gap down by 72 that may want to get filled before any breakout.
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
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
Daily Market Commentary Archives
To get weekly or daily notifications when we post new commentary, sign up HERE.
Thanks so much 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.
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[TR]
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[TD="width: 338, align: center"] Daily TSP Funds Return
[TR]
[TD="align: right"][/TD]
[/TR]
[/TABLE]
[/TD]
[/TR]
[/TABLE]
After another rally in the stock market we are starting to see some influential earnings reports roll in, and after a disappointing miss reported from Goldman Sachs yesterday, their stock rallied 1% on the day. That's the environment we are in.
After the bell yesterday a few of the early anticipated earnings came out after the bell yesterday from Tesla, Netflix, IBM, and United Airlines, it was a mixed bag in after hours trading. United performed best and was up about 4% while Netflix was down about 5%, so no major moves yet, although this was early on before the conference calls kicked off.
Price action pays so indicators, charts, and data are just clues to what may happen, but recently the clues have done little to imply the kind of strength that we have been seeing in stocks in recent months. The rally has been very influenced by the hype of Artificial Intelligence, and history tells us that a new promising story can be a powerful influence for years.
If you are in stocks and making money, more power to you. As I said, it is what is paying right now. But I'll play devil's advocate again perhaps to give the bulls a reality check who may be locked in their basement, like Scrooge McDuck, counting their statement gains.
First off, one of the old adages on Wall Street is "Don't Fight the Fed." If the Fed is cutting interest rates, or they are already low, the path of least resistance historically for stocks is up. If the Fed is raising interest rates, the path of least resistance is down. The Fed will have at least one more hike for us next week, then it will be wait and see, but a 5% plus interest rate has a different impact on the economy and earnings than a 0% rate.
How about the Fed's Balance Sheet which, when they were raising the made money easily available, and it stimulated the economy. They called that QE or quantitative easing. It also has a negative impact on inflation as we saw last year. Now they are reducing the balance sheet (quantitative tightening) with the intent of easing inflation and that may not stop the stock market from going up, but when easy money is pulled, liquidity becomes an issue and it tends to be tougher for financial markets.
How about the inverted yield curve? The stock market reacted negatively last year on this normally troublesome development as it almost always suggests a recession is coming. This year investors are yawning at this chart, which is one of the most inverted and longest stretches of being inverted that we have seen in many decades. Is it "different this time?"
I don't have any specific analysis on this; it's just an observation, but I noticed that China's Shanghais Index, which has been following along with the US market for the last couple of years, is suddenly rolling over and is now below its 200-day EMA while the US market is in this melt up mode. Does it mean anything? I don't know. China is not part of the I-fund but obviously they are a major economic power and can influence the global economy.
Again, it's hard to argue with what is happening. As I also way say, the market tends to lead the headlines, and perhaps 6 months from now we will understand more why this market is acting the way it is today, but clearly there are some issues as I mentioned that normally get in the way of a bull market.
Earnings will continue to pour in but it's next week's FOMC meeting and the Fed's guidance on interest rates that will set the tone for the rest of the summer, plus the big FANG type of stocks will also start reporting next week and into August.
The S&P 500 (C-fund) inched up yet again as the bears continue to hibernate. The question is if they will come out next week when the Fed and earnings are making headlines, or are they just going to sleep all summer? The chart looks very strong, but clearly extended while testing or busting through resistance with each new move higher. The index is now 13% above its 200-day EMA, and 5% above its 50-day EMA, which is quite extended.
EFA (I-fund) was flat on the day as the strength in the dollar held it back. The dollar filled one open gap yesterday during its rally, but there's one more to go, and with the two large gaps below on the EFA, perhaps we'll see a Fed driven gap filling party next week here.
BND (F-fund) had a nice day as yields fell again, but there's a lot of overhead resistance on this chart and a large open gap down by 72 that may want to get filled before any breakout.
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
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
Daily Market Commentary Archives
To get weekly or daily notifications when we post new commentary, sign up HERE.
Thanks so much 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.
