Investors liked what they heard about tariffs over the weekend, and businesses are salivating over the pro-business policies being set in the new administration, but how much of these anticipated changes are already priced in? Is there more to go, or is it time to take some profits? I suppose it all depends on your investment approach. Yields and the dollar fell helping the S and I-funds lead on the way up yesterday.
You can see the latest updated TSP share prices and returns, usually posted daily by 8:30 PM ET here: https://www.tsptalk.com/tsp_share_prices.php
Yields moved down yesterday, as did the dollar. Tack that onto the increase in the Fed's liquidity and expanding M2 money and it's tough to fight the bullish case. But fundamental analysts will go directly to valuations and the market indices are at or near an all time high valuation, which scares those value investors.
Unfortunately for value investors, timing is an issue and, as the old sayings go: "Don't fight the Fed", and "Markets can remain irrational longer than you can remain solvent."
This information from Hussman Funds is one of those counter-points to continued upside, and it's a pretty good argument.
"The chart below shows the ratio of nonfinancial market capitalization to gross value-added – what I call MarketCap/GVA – in data since 1928. It remains our most reliable valuation measure, based on correlation with actual subsequent 10-12-year S&P 500 total returns across history. Last week’s record high featured the most extreme level of valuation in U.S. history."
It's difficult to see the details so check out the full report in the link below the chart. But the point is where this valuation chart is currently compared to the last 95 years. Sure, over the next 10 to 12 years stocks may underperform based on this historical data, but it doesn't tell us how high things can go, or how long they can go up, while we're waiting for that dose of reality to kick in.
Source: https://www.hussmanfunds.com/comment/mc241117/
But right here, right now, money is flowing, yields are attempting to come down, but as long as they are not going up, the stocks market will likely rally until the momentum stops and the direction turns, but no one is going to let us know when that will be. The seasonality calendar may suggest February, as it is one of the least bullish months of the year, but seasonality is not a primary market indicator, except perhaps surrounding some of the major holidays.
The 10-year Treasury Yield was down modestly yesterday but it was the dollar that was the big mover, and that move was down, and it also broke below its 20-day EMA for the first time in many months. That helps prices in general, but of course it really helps our I-fund, which needed the help.
ACWX (the I-fund tracking index) was up 1.61% yesterday and the I-fund was given a gain of 1.5%. The breakout above those key moving averages is encouraging.
Looking out a little longer term and we see there may be more resistance the closer it gets to 54, but that could be a huge bull flag, and if it can breakout above that, the upside targets would be juicy.
Remember a year or two ago when we were saying, "As goes Apple, so goes the stock market?" Something has changed recently. Apple has not been participating in this year's rally, yet the indices are doing just fine. That is unusual given the weight of Apple's stock in the big three indices. The stock is hitting the 200-day EMA, which may turn out to be support, but...
... the longer term chart shows that it can fall below that average, and did so as recently as last spring. The moral of the story is, something is changing as the stock market embraces A-I and it may leave the enthusiasm for some of the more antiquated technology stocks behind - or at least until they can catch up.
Netflix was one of the original FAANG stocks, but it kind of got tossed out of the mix when the Magnificent 7 stocks took over the headlines. It's not the best indication of the economy or innovation, but perhaps it is an indication of consumer demand and yesterday after the bell it posted a big beat in earnings with 10 million more new subscribers in the quarter than expected. It may have been temporarily helped by the Tyson vs. Paul "fight", but still this first big tech stock to report quarterly earnings was up 13% in after hours trading yesterday.
Next week's calendar is filled with market moving catalysts so whether the bulls will take profits, or let them ride, it could be a headline driven market for the rest of the month, with a few Trump comments in there to keep us guessing.
The S&P 500 (C-fund) made it day number two above the bull flag breakout. Three to five closes is usually a good confirmation of a breakout, but there's now three open gaps below and at some point the bears are going to want to attempt to fill them. As I mentioned above, the market may be headline driven until the end of the month with inflation data, an FOMC Fed meeting, and Mag 7 earnings all coming next week. This is now less the 1% below its all time closing high so a double top pause is possibly on the table.
DWCPF (S-fund) led the way with a 1.7% gain yesterday. It finally made its way back to the top of the old breakdown candlestick and above the old bear flag in blue. This one has more room to run before testing its previous December highs, but can it continue to rally if the S&P hits double top?
BND (bonds) was up nicely on Tuesday but it is up against its 50-day EMA. If it can get past that...
... it may have a long way to roam before it hits the top of that large bullish looking flag. If it can eventually break above 73, yields would be plummeting. Why they would do that could be concerning, but stocks may rally while it's happening.
Thanks so much for reading! We'll see you back here tomorrow.
Tom Crowley
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
Questions, comments, or issues with today's commentary? We can discuss it in the Forum.
Daily Market Commentary Archives
For more info our other premium services, please go here... www.tsptalk.com/premiums.php
To get weekly or daily notifications when we post new commentary, sign up HERE.
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.
| Daily TSP Funds Return
More returns |
You can see the latest updated TSP share prices and returns, usually posted daily by 8:30 PM ET here: https://www.tsptalk.com/tsp_share_prices.php
Yields moved down yesterday, as did the dollar. Tack that onto the increase in the Fed's liquidity and expanding M2 money and it's tough to fight the bullish case. But fundamental analysts will go directly to valuations and the market indices are at or near an all time high valuation, which scares those value investors.
Unfortunately for value investors, timing is an issue and, as the old sayings go: "Don't fight the Fed", and "Markets can remain irrational longer than you can remain solvent."
This information from Hussman Funds is one of those counter-points to continued upside, and it's a pretty good argument.
"The chart below shows the ratio of nonfinancial market capitalization to gross value-added – what I call MarketCap/GVA – in data since 1928. It remains our most reliable valuation measure, based on correlation with actual subsequent 10-12-year S&P 500 total returns across history. Last week’s record high featured the most extreme level of valuation in U.S. history."
It's difficult to see the details so check out the full report in the link below the chart. But the point is where this valuation chart is currently compared to the last 95 years. Sure, over the next 10 to 12 years stocks may underperform based on this historical data, but it doesn't tell us how high things can go, or how long they can go up, while we're waiting for that dose of reality to kick in.
Source: https://www.hussmanfunds.com/comment/mc241117/
But right here, right now, money is flowing, yields are attempting to come down, but as long as they are not going up, the stocks market will likely rally until the momentum stops and the direction turns, but no one is going to let us know when that will be. The seasonality calendar may suggest February, as it is one of the least bullish months of the year, but seasonality is not a primary market indicator, except perhaps surrounding some of the major holidays.
The 10-year Treasury Yield was down modestly yesterday but it was the dollar that was the big mover, and that move was down, and it also broke below its 20-day EMA for the first time in many months. That helps prices in general, but of course it really helps our I-fund, which needed the help.
ACWX (the I-fund tracking index) was up 1.61% yesterday and the I-fund was given a gain of 1.5%. The breakout above those key moving averages is encouraging.
Looking out a little longer term and we see there may be more resistance the closer it gets to 54, but that could be a huge bull flag, and if it can breakout above that, the upside targets would be juicy.
Remember a year or two ago when we were saying, "As goes Apple, so goes the stock market?" Something has changed recently. Apple has not been participating in this year's rally, yet the indices are doing just fine. That is unusual given the weight of Apple's stock in the big three indices. The stock is hitting the 200-day EMA, which may turn out to be support, but...
... the longer term chart shows that it can fall below that average, and did so as recently as last spring. The moral of the story is, something is changing as the stock market embraces A-I and it may leave the enthusiasm for some of the more antiquated technology stocks behind - or at least until they can catch up.
Netflix was one of the original FAANG stocks, but it kind of got tossed out of the mix when the Magnificent 7 stocks took over the headlines. It's not the best indication of the economy or innovation, but perhaps it is an indication of consumer demand and yesterday after the bell it posted a big beat in earnings with 10 million more new subscribers in the quarter than expected. It may have been temporarily helped by the Tyson vs. Paul "fight", but still this first big tech stock to report quarterly earnings was up 13% in after hours trading yesterday.
Next week's calendar is filled with market moving catalysts so whether the bulls will take profits, or let them ride, it could be a headline driven market for the rest of the month, with a few Trump comments in there to keep us guessing.
The S&P 500 (C-fund) made it day number two above the bull flag breakout. Three to five closes is usually a good confirmation of a breakout, but there's now three open gaps below and at some point the bears are going to want to attempt to fill them. As I mentioned above, the market may be headline driven until the end of the month with inflation data, an FOMC Fed meeting, and Mag 7 earnings all coming next week. This is now less the 1% below its all time closing high so a double top pause is possibly on the table.
DWCPF (S-fund) led the way with a 1.7% gain yesterday. It finally made its way back to the top of the old breakdown candlestick and above the old bear flag in blue. This one has more room to run before testing its previous December highs, but can it continue to rally if the S&P hits double top?
BND (bonds) was up nicely on Tuesday but it is up against its 50-day EMA. If it can get past that...
... it may have a long way to roam before it hits the top of that large bullish looking flag. If it can eventually break above 73, yields would be plummeting. Why they would do that could be concerning, but stocks may rally while it's happening.
Thanks so much for reading! We'll see you back here tomorrow.
Tom Crowley
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
Questions, comments, or issues with today's commentary? We can discuss it in the Forum.
Daily Market Commentary Archives
For more info our other premium services, please go here... www.tsptalk.com/premiums.php
To get weekly or daily notifications when we post new commentary, sign up HERE.
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.
