Stocks rallied again despite the slightly hotter than expected CPI data yesterday. The Dow gained 173-points, or about a half of a percent, which was similar to the gain in the S&P 500. The Nasdaq led on the upside with a 0.70% gain, but small caps lagged all day although managed to close just into positive territory. Bonds were up as yields pulled back.
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It's interesting to watch the volatility in the overnight futures market and in pre-market trading, and then once the opening bell rings the bears disappear and the bulls push the indices higher all day. After both the jobs report on Friday and Tuesday's CPI report, the futures sold off, only to have everything flip back to the positive side during regular trading hours.
I would interpret this as the usually savvy futures traders, whether bullish or bearish, giving way to money managers who need to window dress their portfolios to show investors, via their end of year reports, that they were all in on the winning stocks of 2023, so they are buying up the best performing stocks into the end of December. Meanwhile mom and pop 401K investors just routinely and consistently buy into the market with every paycheck regardless of valuations or market conditions.
The mom and pop analogy is probably why we see stocks normally moving up slowly, but when they come down they do so much more quickly. As they say, stocks group the escalator, and come down the elevator. The interesting thing in the second half of this year is that stocks moved down for three months from August through October, but then spent just a little over a month to get those losses back, so stocks took the elevated up this time.
Why? It's most likely because of the change in outlook from the Fed to being less hawkish because of the better inflation data that we've been seeing. Yesterday's CPI was slightly hotter than expected, but the year over year gain of 3.1% was inline with estimates, and a far from the 9% we saw in 2022.
Still, 3.1% inflation is not inflation coming down, i.e. prices falling, but rather they just aren't moving up as fast as they were at inflation's worst levels. The 3.1% increase in consumer prices is on top of last years higher prices. The Fed has a target inflation rate of 2%, so 3.1% is actually 50% above that target. Better than it has been, but still inflationary.
Since 2008, and before the 2021 jump higher in inflation, we only saw 3% once (2011.) That year the C fund gained 2.1%, but small caps were down 3.4%, and the I-fund lost 11.8%.
So again, prices are not coming down yet. They just aren't going up as fast as they were last year. And we don't really ever expect prices to come down because inflation is a part of growth, but when retired, you have to consider the inflation rate to compare your retirement balance growth with the rate of inflation. In that regard, the stock market has more than kept up the pace this year, but don't forget that stocks were down sharply last year while inflation was ripping higher.
We'll get the PPI report this morning, and that could be an influencer if it isn't near expectations but of course today's highlight is the Fed's decision on interest rates, and their monetary policy going forward. While the economic data has been coming in a little stronger than expected lately, the slightly hot CPI, the better than expected jobs report with a decrease in unemployment, etc., it may not sit well with the Fed and their plan to pull inflation down to 2%.
If the Fed doesn't stop this current 6+ week rally in the stock market, there aren't many more obstacles in the way between now and the end of the year and so far we have not seen any sign of the typical weakness that occurs in early December before the holiday bullish run.
Forward earnings P/E ratio (price to earnings) for the S&P 500 is about 20, and with GDP estimates near 1% for 2024, stock prices seem to be getting quite overvalued, and the charts are certainly over stretched compared to "normal" price action, but again the holidays may postpone any reaction to that.
The 10-year Treasury Yield was down yesterday despite the warmer CPI data, but it remains above the 200-day EMA so that may get tested again for support.
The dollar was also down and it fell back below its 50-day EMA yesterday, once again ignoring the large overhead open gap up near 29.80.
OK, with the Fed on deck I'll stop speculating and we'll see how the market reacts to their monetary policy, plus this morning's PPI report, which will be out an hour before the opening bell.
The S&P 500 (C-fund) just keeps stretching higher and we've seen these rubber bands go a lot longer than seems possible. Sometimes they snap and leave a mark, but as we get closer to the holidays, the bears are growing more frustrated and may just give up (they are getting short-squeezed.) Giving up (capitulation) may be exactly what turns this around, but can that happen before the end of the year, or will any selling wait until after the New Year when capital gains taxes rollover into tax year 2024?
DWCPF (smalls caps / S-fund) continues its "V" bottom rocket off the lows without any meaningful pullback. We saw a slowdown last week, but that's not considered a pullback, more of a dip and we know the dip buyers have been quick to act. The chart has some issues, but if I say the words 'open gap' again, I think I will need to be institutionalized.
EFA (I-fund) was up modestly and it poked its head back above that old blue gap that had been filled a while, but it is now stretching up toward the late July gap. The "F" flag in black is long and lean and could be getting ready to break down, as they tend to do. Can it hold for another 2.5 weeks through the end of the year?
BND (Bonds / F-fund) rallied yesterday, just enough to fill in the small open gap (I said it again) off high from last week. Do you see how quickly those small gaps (blue) are getting filled? That's three in the last 2 plus weeks that opened and filled. The narrow ascending channel did break this week so we'll see if the bears start selling bonds now that it is testing that old broken support line near 72.
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
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.
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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It's interesting to watch the volatility in the overnight futures market and in pre-market trading, and then once the opening bell rings the bears disappear and the bulls push the indices higher all day. After both the jobs report on Friday and Tuesday's CPI report, the futures sold off, only to have everything flip back to the positive side during regular trading hours.
I would interpret this as the usually savvy futures traders, whether bullish or bearish, giving way to money managers who need to window dress their portfolios to show investors, via their end of year reports, that they were all in on the winning stocks of 2023, so they are buying up the best performing stocks into the end of December. Meanwhile mom and pop 401K investors just routinely and consistently buy into the market with every paycheck regardless of valuations or market conditions.
The mom and pop analogy is probably why we see stocks normally moving up slowly, but when they come down they do so much more quickly. As they say, stocks group the escalator, and come down the elevator. The interesting thing in the second half of this year is that stocks moved down for three months from August through October, but then spent just a little over a month to get those losses back, so stocks took the elevated up this time.
Why? It's most likely because of the change in outlook from the Fed to being less hawkish because of the better inflation data that we've been seeing. Yesterday's CPI was slightly hotter than expected, but the year over year gain of 3.1% was inline with estimates, and a far from the 9% we saw in 2022.
Still, 3.1% inflation is not inflation coming down, i.e. prices falling, but rather they just aren't moving up as fast as they were at inflation's worst levels. The 3.1% increase in consumer prices is on top of last years higher prices. The Fed has a target inflation rate of 2%, so 3.1% is actually 50% above that target. Better than it has been, but still inflationary.
Since 2008, and before the 2021 jump higher in inflation, we only saw 3% once (2011.) That year the C fund gained 2.1%, but small caps were down 3.4%, and the I-fund lost 11.8%.
So again, prices are not coming down yet. They just aren't going up as fast as they were last year. And we don't really ever expect prices to come down because inflation is a part of growth, but when retired, you have to consider the inflation rate to compare your retirement balance growth with the rate of inflation. In that regard, the stock market has more than kept up the pace this year, but don't forget that stocks were down sharply last year while inflation was ripping higher.
We'll get the PPI report this morning, and that could be an influencer if it isn't near expectations but of course today's highlight is the Fed's decision on interest rates, and their monetary policy going forward. While the economic data has been coming in a little stronger than expected lately, the slightly hot CPI, the better than expected jobs report with a decrease in unemployment, etc., it may not sit well with the Fed and their plan to pull inflation down to 2%.
If the Fed doesn't stop this current 6+ week rally in the stock market, there aren't many more obstacles in the way between now and the end of the year and so far we have not seen any sign of the typical weakness that occurs in early December before the holiday bullish run.
Forward earnings P/E ratio (price to earnings) for the S&P 500 is about 20, and with GDP estimates near 1% for 2024, stock prices seem to be getting quite overvalued, and the charts are certainly over stretched compared to "normal" price action, but again the holidays may postpone any reaction to that.
The 10-year Treasury Yield was down yesterday despite the warmer CPI data, but it remains above the 200-day EMA so that may get tested again for support.
The dollar was also down and it fell back below its 50-day EMA yesterday, once again ignoring the large overhead open gap up near 29.80.
OK, with the Fed on deck I'll stop speculating and we'll see how the market reacts to their monetary policy, plus this morning's PPI report, which will be out an hour before the opening bell.
The S&P 500 (C-fund) just keeps stretching higher and we've seen these rubber bands go a lot longer than seems possible. Sometimes they snap and leave a mark, but as we get closer to the holidays, the bears are growing more frustrated and may just give up (they are getting short-squeezed.) Giving up (capitulation) may be exactly what turns this around, but can that happen before the end of the year, or will any selling wait until after the New Year when capital gains taxes rollover into tax year 2024?
DWCPF (smalls caps / S-fund) continues its "V" bottom rocket off the lows without any meaningful pullback. We saw a slowdown last week, but that's not considered a pullback, more of a dip and we know the dip buyers have been quick to act. The chart has some issues, but if I say the words 'open gap' again, I think I will need to be institutionalized.
EFA (I-fund) was up modestly and it poked its head back above that old blue gap that had been filled a while, but it is now stretching up toward the late July gap. The "F" flag in black is long and lean and could be getting ready to break down, as they tend to do. Can it hold for another 2.5 weeks through the end of the year?
BND (Bonds / F-fund) rallied yesterday, just enough to fill in the small open gap (I said it again) off high from last week. Do you see how quickly those small gaps (blue) are getting filled? That's three in the last 2 plus weeks that opened and filled. The narrow ascending channel did break this week so we'll see if the bears start selling bonds now that it is testing that old broken support line near 72.
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
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.
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.
