Stocks were mixed after a typical choppy FOMC meeting day after the Fed policy statement was released. The Fed left rates alone this time but indicated more rate hikes are probable before the end of the year and that may be why small caps lagged and were down sharply. The Dow lost 229-points but almost all of that was from Unitedhealth Group, which was down 6.3% and is the heaviest weighted stock in the Dow. Stocks sold off sharply during the press conference but came back by the close to give the S&P and Nasdaq another daily gain. Bonds were up slightly as yields slipped.
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The Fed did come across as quite hawkish and the way one person described it was that at the prior meeting they raised rates but sounded dovish. Yesterday they paused the rate hikes but sounded more hawkish. So, what is the message?
I did hear Jerome Powell say that no committee members expect a rate cut this year, and he said he doesn't see that happening until inflation comes down significantly, and "we're talking about a couple of years out." He added, "Inflation has not really moved down and has not reacted too much to our existing rate hikes." That doesn't sound very dovish.
I don't know any more than the dozens of analysts who gave their opinion on this yesterday on the Financial TV shows, and they all had different opinions, so my guess is as good as theirs. The market is saying they don't believe the Fed. It appears to be calling the Fed's bluff by rallying in the face of what sounds like very hawkish rhetoric. So who do you believe, the market or the Fed?
The Fed is trying to save their credibility and maybe they are concerned at the rate at which stocks have been rising recently. Can this rally continue under these circumstances? Maybe. There is a possible precedence for this kind of action. Think A.I. in 2023 vs. the Internet of 1995.
You may be old enough to remember when Netscape came out with their internet browser making it so much easier for non tech-geeks to surf the internet. That changed everything! There was also a little thing going on called Y2K that contributed to this but the internet and accessing it was thing of the 90's and it triggered the 5-year dot com massive rally.
That bubble did eventually burst but that was some five years for the stock market - particularly those big tech stocks that took advantage of the internet and created an online presence, but I remember traders and investors not believing in the rally and they got left behind for a long time. Buy and holders made money all the way up, but most them lost it on the way down as well. The trick was to go with the flow, which was tough to do when it seemed so parabolic and unsustainable, but sustainable it was for five plus years, before...
Now we have A.I. I have used it here and there, and we all have some access to it, but big tech companies are upgrading hardware and software to incorporate it into their businesses, and companies like Nvidia, AMD, and of course the FANG type stocks, are all up big this year, so this could be the internet of 2023 and beyond. Companies that don't adapt will likely be left behind so A.I. could be the igniter and market catalyst for years... if it doesn't kill us first as Elon Musk suggests.
This is pure speculation on my part and I may be very wrong, but it is interesting because the market seems to be ignoring all of the other warnings signs of rate hikes, calls for a recession, lowered earnings estimates and P/E ratios, and basically everything that is supposed to matter.
One of those things that is supposed to matter is the inverted 2/10 year Treasury Yield Curve. It's getting closer to the worst levels of the year again. This is completely being ignored and in the past it has been a great indicator of an impending recession. You can see that it inverted in July of last year so we're going on a year soon. And it actually inverted briefly in April of 2022 as well, and that was part of the reason for the bear market activity last year. "They" say an inversion can precede a recession by 1 or 2.
The dollar was down sharply yesterday, and that started well before the Fed announcement. This dollar ETF (UUP) is approaching its 50-day EMA and whether this holds or not may be a big deal, especially for the I-fund, which broke out to a new high yesterday with the help of the loss in the dollar. Either the 50-day EMA holds, or the handful of open gaps below may start to get picked off.
Finally, I wanted to point out that the Dow Transportation Index exploded above resistance yesterday despite all of the choppiness. UPS was up and that helped, but this economically sensitive index is trying to tell us something here, and that something right now looks pretty bullish.
I have been pretty neutral lately and the headlines lately haven't helped much as the fundamentals tell us one thing but the charts are telling us another as they continue to push higher in the face of all of the turmoil. FOMO is a real thing and it works even when stocks are over valued and are making new highs.
The S&P 500 (C-fund) was up early, flipped over and fell sharply as Fed Chair Powell was speaking and finally filled Tuesday's open gap, then rebounded again to close just north of flat. It looks a little frothy, but if I had a longer term chart here you would see that it is only up a 2 or 3% over the last few years as it tries to recapture the 2022 losses. So short-term, yes. It looks overbought and in need of a pause. But long term, depending on the reality of future rate hikes and that A.I. theory, it could be OK. I'm neutral myself, but leaning toward short term nervousness.
The DWCPF (S-fund) was down sharply but filled Tuesday's open gap and remains near recent highs after the big rally in the first half of June. A pullback to the breakout area, or even down to fill that open gap near 1665 is possible, but not the worst thing that could happen now that it seems a little overbought in the short-term.
BND (Bonds / F-fund) has been in a trading range and floating between some moving averages for the last month. An open gap near 72.20 was almost filled yesterday, and the 200-day moving average (orange) is at 71.89. And of course there's that big open gap near 71.50 that continues to be a possible draw.
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
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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The Fed did come across as quite hawkish and the way one person described it was that at the prior meeting they raised rates but sounded dovish. Yesterday they paused the rate hikes but sounded more hawkish. So, what is the message?
I did hear Jerome Powell say that no committee members expect a rate cut this year, and he said he doesn't see that happening until inflation comes down significantly, and "we're talking about a couple of years out." He added, "Inflation has not really moved down and has not reacted too much to our existing rate hikes." That doesn't sound very dovish.
I don't know any more than the dozens of analysts who gave their opinion on this yesterday on the Financial TV shows, and they all had different opinions, so my guess is as good as theirs. The market is saying they don't believe the Fed. It appears to be calling the Fed's bluff by rallying in the face of what sounds like very hawkish rhetoric. So who do you believe, the market or the Fed?
The Fed is trying to save their credibility and maybe they are concerned at the rate at which stocks have been rising recently. Can this rally continue under these circumstances? Maybe. There is a possible precedence for this kind of action. Think A.I. in 2023 vs. the Internet of 1995.
You may be old enough to remember when Netscape came out with their internet browser making it so much easier for non tech-geeks to surf the internet. That changed everything! There was also a little thing going on called Y2K that contributed to this but the internet and accessing it was thing of the 90's and it triggered the 5-year dot com massive rally.
That bubble did eventually burst but that was some five years for the stock market - particularly those big tech stocks that took advantage of the internet and created an online presence, but I remember traders and investors not believing in the rally and they got left behind for a long time. Buy and holders made money all the way up, but most them lost it on the way down as well. The trick was to go with the flow, which was tough to do when it seemed so parabolic and unsustainable, but sustainable it was for five plus years, before...
Now we have A.I. I have used it here and there, and we all have some access to it, but big tech companies are upgrading hardware and software to incorporate it into their businesses, and companies like Nvidia, AMD, and of course the FANG type stocks, are all up big this year, so this could be the internet of 2023 and beyond. Companies that don't adapt will likely be left behind so A.I. could be the igniter and market catalyst for years... if it doesn't kill us first as Elon Musk suggests.
This is pure speculation on my part and I may be very wrong, but it is interesting because the market seems to be ignoring all of the other warnings signs of rate hikes, calls for a recession, lowered earnings estimates and P/E ratios, and basically everything that is supposed to matter.
One of those things that is supposed to matter is the inverted 2/10 year Treasury Yield Curve. It's getting closer to the worst levels of the year again. This is completely being ignored and in the past it has been a great indicator of an impending recession. You can see that it inverted in July of last year so we're going on a year soon. And it actually inverted briefly in April of 2022 as well, and that was part of the reason for the bear market activity last year. "They" say an inversion can precede a recession by 1 or 2.
The dollar was down sharply yesterday, and that started well before the Fed announcement. This dollar ETF (UUP) is approaching its 50-day EMA and whether this holds or not may be a big deal, especially for the I-fund, which broke out to a new high yesterday with the help of the loss in the dollar. Either the 50-day EMA holds, or the handful of open gaps below may start to get picked off.
Finally, I wanted to point out that the Dow Transportation Index exploded above resistance yesterday despite all of the choppiness. UPS was up and that helped, but this economically sensitive index is trying to tell us something here, and that something right now looks pretty bullish.
I have been pretty neutral lately and the headlines lately haven't helped much as the fundamentals tell us one thing but the charts are telling us another as they continue to push higher in the face of all of the turmoil. FOMO is a real thing and it works even when stocks are over valued and are making new highs.
The S&P 500 (C-fund) was up early, flipped over and fell sharply as Fed Chair Powell was speaking and finally filled Tuesday's open gap, then rebounded again to close just north of flat. It looks a little frothy, but if I had a longer term chart here you would see that it is only up a 2 or 3% over the last few years as it tries to recapture the 2022 losses. So short-term, yes. It looks overbought and in need of a pause. But long term, depending on the reality of future rate hikes and that A.I. theory, it could be OK. I'm neutral myself, but leaning toward short term nervousness.
The DWCPF (S-fund) was down sharply but filled Tuesday's open gap and remains near recent highs after the big rally in the first half of June. A pullback to the breakout area, or even down to fill that open gap near 1665 is possible, but not the worst thing that could happen now that it seems a little overbought in the short-term.
BND (Bonds / F-fund) has been in a trading range and floating between some moving averages for the last month. An open gap near 72.20 was almost filled yesterday, and the 200-day moving average (orange) is at 71.89. And of course there's that big open gap near 71.50 that continues to be a possible draw.
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
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.
