The 8-day winning streak for the S&P 500 and Nasdaq came to an end, as the stock market took a much needed rest on - could it be - a Turnaround Tuesday? Small caps lagged by quite a bit. Bonds continue to rally as yields keep falling, and the dollar is also in some trouble as it is falling precipitously lately. Could the weak dollar be inflationary? Could that keep the Fed from cutting interest rates despite bond yields indicating the Fed is late?
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The decline in stocks yesterday isn't very newsworthy. It was bound to happen after the 8-day winning streak, but as we'll see in the TSP Fund charts in the bottom section, there was a potential reversal formation created. Not a market peaking indicator, but perhaps a dip or pullback triggering indication.
I'm going to get a little more macro, and I appreciate your patience with this as it may not be very interesting, and I'm basically working this out in my head by writing it out.
First off, yields and the dollar are falling. Both could indicate weakness in the economy and / or the lull in inflation growth. The decline in yields, particularly the 2-year Treasury Yield , which the Fed aims to mimic, has been fairly steep, yet the Fed held off cutting, as I mentioned yesterday, but even a 0.25% cut, or a 0.50%, would still leave the Fed well behind this current 4% 2-year rate, and it looks like it may want to go lower. But...
If rates keep falling, and the dollar keeps getting weaker, won't that eventually stimulate, not only the economy, but also inflation again? So maybe the Fed is damned if he does cut, and damned if he don't.
One reason he may have to cut is that for the second year in a row, and this is something I talk about each month after the monthly jobs reports come out, there will likely be a dramatic negative revision in the jobs data. In early 2024 they revised the total 2023 job gains down by 800,000. This year that number may be closer to 1 million, according to this Bloomberg article:
Fed confronts up to a million US jobs vanishing in revision
It says:
"Goldman Sachs Group Inc. and Wells Fargo & Co. economists expect the government’s preliminary benchmark revisions on Wednesday to show payrolls growth in the year through March was at least 600,000 weaker than currently estimated — about 50,000 a month.
"While JPMorgan Chase & Co. forecasters see a decline of about 360,000, Goldman Sachs indicates it could be as large as a million."
So yes, the game is being played of happy jobs report headlines, followed by massive downward revisions to reality. What does this mean for interest rate cuts? It means the Fed is possibly lagging, as the 2-year Treasury suggests.
As for the economy, this is the Leading Economic Index and still shows weakness after the rebound in 2023 and 2024 off the lows. This indicator gets some serious momentum once they find a direction, but it looks like it may be trying to rollover again?
Click on the chart for more information on this indicator.
All that said, this sets up lower interest rates, as long as the Fed isn't concerned with inflation flaring back up, and lower rates are probably going to help stocks in the short-term, unless the Fed is trying to save the economy from an unanticipated hiccup in the economy.
Jerome Powell will speak at the Jackson Hole Symposium on Friday, which could be a market mover, especially if he addresses some of the concerns I just discussed about employment.
Here are S&P 500 returns for the last 13 years surrounding Jackson Hole.
Source: https://x.com/TradingThomas3/status/1825603977473569041
The Weekly Jobless Claims come out on Thursday and this may also be fodder for Jackson Hole.
The S&P 500 (C-fund) made a higher high at one point yesterday, but it closed down by the closing bell and those spinning top formations tend to indicate indecision and a possible change in sentiment and direction. We got a couple of them in early July before the correction started.
The DWCPF (S-fund) pulled back but managed to close above that key level of support, which was the old resistance and the top of that large blue open gap that is no filled. It will have to break below that support if it plans to fill in that red open gap.
The EFA (I-fund) is nearing the July highs, and like the other charts, the move from the top to the bottom, and back to the top was historically fast. Does this need some time to back and fill some of those open gaps? The weak dollar continues to help buoy it here.
BND (F-fund) was up nicely again as the trend of lower yields and high bond prices continues.
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.html
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.
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[TD="width: 311, align: center"] Daily TSP Funds Return
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The decline in stocks yesterday isn't very newsworthy. It was bound to happen after the 8-day winning streak, but as we'll see in the TSP Fund charts in the bottom section, there was a potential reversal formation created. Not a market peaking indicator, but perhaps a dip or pullback triggering indication.
I'm going to get a little more macro, and I appreciate your patience with this as it may not be very interesting, and I'm basically working this out in my head by writing it out.
First off, yields and the dollar are falling. Both could indicate weakness in the economy and / or the lull in inflation growth. The decline in yields, particularly the 2-year Treasury Yield , which the Fed aims to mimic, has been fairly steep, yet the Fed held off cutting, as I mentioned yesterday, but even a 0.25% cut, or a 0.50%, would still leave the Fed well behind this current 4% 2-year rate, and it looks like it may want to go lower. But...
If rates keep falling, and the dollar keeps getting weaker, won't that eventually stimulate, not only the economy, but also inflation again? So maybe the Fed is damned if he does cut, and damned if he don't.
One reason he may have to cut is that for the second year in a row, and this is something I talk about each month after the monthly jobs reports come out, there will likely be a dramatic negative revision in the jobs data. In early 2024 they revised the total 2023 job gains down by 800,000. This year that number may be closer to 1 million, according to this Bloomberg article:
Fed confronts up to a million US jobs vanishing in revision
It says:
"Goldman Sachs Group Inc. and Wells Fargo & Co. economists expect the government’s preliminary benchmark revisions on Wednesday to show payrolls growth in the year through March was at least 600,000 weaker than currently estimated — about 50,000 a month.
"While JPMorgan Chase & Co. forecasters see a decline of about 360,000, Goldman Sachs indicates it could be as large as a million."
So yes, the game is being played of happy jobs report headlines, followed by massive downward revisions to reality. What does this mean for interest rate cuts? It means the Fed is possibly lagging, as the 2-year Treasury suggests.
As for the economy, this is the Leading Economic Index and still shows weakness after the rebound in 2023 and 2024 off the lows. This indicator gets some serious momentum once they find a direction, but it looks like it may be trying to rollover again?
Click on the chart for more information on this indicator.
All that said, this sets up lower interest rates, as long as the Fed isn't concerned with inflation flaring back up, and lower rates are probably going to help stocks in the short-term, unless the Fed is trying to save the economy from an unanticipated hiccup in the economy.
Jerome Powell will speak at the Jackson Hole Symposium on Friday, which could be a market mover, especially if he addresses some of the concerns I just discussed about employment.
Here are S&P 500 returns for the last 13 years surrounding Jackson Hole.
Source: https://x.com/TradingThomas3/status/1825603977473569041
The Weekly Jobless Claims come out on Thursday and this may also be fodder for Jackson Hole.
The S&P 500 (C-fund) made a higher high at one point yesterday, but it closed down by the closing bell and those spinning top formations tend to indicate indecision and a possible change in sentiment and direction. We got a couple of them in early July before the correction started.
The DWCPF (S-fund) pulled back but managed to close above that key level of support, which was the old resistance and the top of that large blue open gap that is no filled. It will have to break below that support if it plans to fill in that red open gap.
The EFA (I-fund) is nearing the July highs, and like the other charts, the move from the top to the bottom, and back to the top was historically fast. Does this need some time to back and fill some of those open gaps? The weak dollar continues to help buoy it here.
BND (F-fund) was up nicely again as the trend of lower yields and high bond prices continues.
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.html
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.
