The large cap indices pulled back yesterday as we head into the election. Perhaps they have more to gain or lose by the outcome because small caps did well yesterday, and there were actually 500 more stocks up than down on the day despite all of the red you see below in the big three indices. Yields and the dollar pulled back a bit but both closed well off their morning lows.
The 10-year Treasury Yield was down very slightly yesterday but it was breaking below the rising trading channel with yesterday's loss. That angle of incline was not likely going to last too long, but the question now is if those yields will hold in that 4.3% area, or if they will come down. 4.3% is a comfortable level and it isn't about it being too high or too low, but rather it is typically a catalyst for the stock market when it is moving quickly in one direction or the other.
Same for the dollar, and at the risk of repeating Monday's commentary, this rally in yields and the dollar could be related to the expectations of inflation as the presidential candidates promise more spending and / or tax cuts, which is inflationary, but again it could also be because the Fed is cutting interest rates, and that should stimulate the economy which would bring on higher yields.
But who knows for sure, because the bond market is a tricky monster?
This chart of the Dow Transportation Index continues to trend higher but that series of closes well off the highs isn't an attractive look for the chart. It doesn't mean Transportation stocks are going to rollover, but it sure hints that it is a possibility. Perhaps it will come down to retest the rising support and start to rally again, but perhaps it gets worse. It's difficult to say, but it's leaning on the bearish side.
Here's another look at sentimenTrader's November seasonality chart, which goes back 30 years. The action in the first day of trading this month was fairly close to that 30 year average, but yesterday fell well short. Next week (after the 8th) the chart gets much less bullish for a couple of weeks before the holiday bullish bias eventually kicks in around the 21st.
Chart provided courtesy of www.sentimentrader.com
Of course the election could sway this well off the averages, but let's not forget that this 30 year average contains many prior November elections, and in general, stocks have done pretty well going into the end of the year, even during election years.
The S&P 500 (C-fund) is hovering near that key 50-day EMA. We saw a similar look in early September which resulted in a one-day break down that was bought starting the following day. Not that it will turnout the same way, but I suppose it could become a pattern. However, the results, or non-results, of the election could make things very different and obviously the situation is different. One thing that isn't different is that the Fed is almost certainly going to lower interest rates on Thursday, as they lowered them in September.
The fact that they are lowering interest rates without too many signs of trouble in the economy - although last Friday's jobs report was an eye opener - the market should applaud that are coming without a crisis looming.
The DWCPF (S-fund) was up slightly and it didn't quite have the gains of the small caps of the Russell 2000 index, but it was up and it held at those key support lines.
According to the TSP website, "I Fund benchmark index change complete — The transition of the I Fund benchmark to the MSCI All Country World Investable Market Index ex USA ex China ex Hong Kong Index (MSCI ACWI IMI ex USA ex China ex Hong Kong Index) is complete."
So it will be interesting to see what price they give the I-fund on Monday night.
The I-fund: The EFA tracking ETF was up 0.08% yesterday, and the "ex USA ex China ex Hong Kong Index" was down 0.14%. You can see the TSP's eventual final daily price and return posted on our site each evening.
The EFA remained in its descending trading channel and is barely holding onto that September low again. The election result could have a big impact on the dollar, which will certainly have an impact on the I-fund. But when will we know the results?
BND (Bonds / F-fund) had a rare positive day yesterday as yields stopped going up for a day. The trend remains down but that old gap continues to hold as support. The Fed rhetoric on Thursday will probably have more impact on the bond market than the election, since the bond market has been speculating and pricing in election possibilities for months.
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
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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 action yesterday in the stock market was not overly exciting but the small caps of the Russell 2000 were up a half of a percent, which helped the S-fund to a small gain. Otherwise it felt like a little tentativeness in front of the election. Whether those nerves were because of who may be the potential winner, or because we may be entering a period of uncertainty, or even political protests if we don't have a winner announced in a reasonable amount of time.The 10-year Treasury Yield was down very slightly yesterday but it was breaking below the rising trading channel with yesterday's loss. That angle of incline was not likely going to last too long, but the question now is if those yields will hold in that 4.3% area, or if they will come down. 4.3% is a comfortable level and it isn't about it being too high or too low, but rather it is typically a catalyst for the stock market when it is moving quickly in one direction or the other.
Same for the dollar, and at the risk of repeating Monday's commentary, this rally in yields and the dollar could be related to the expectations of inflation as the presidential candidates promise more spending and / or tax cuts, which is inflationary, but again it could also be because the Fed is cutting interest rates, and that should stimulate the economy which would bring on higher yields.
But who knows for sure, because the bond market is a tricky monster?
This chart of the Dow Transportation Index continues to trend higher but that series of closes well off the highs isn't an attractive look for the chart. It doesn't mean Transportation stocks are going to rollover, but it sure hints that it is a possibility. Perhaps it will come down to retest the rising support and start to rally again, but perhaps it gets worse. It's difficult to say, but it's leaning on the bearish side.
Here's another look at sentimenTrader's November seasonality chart, which goes back 30 years. The action in the first day of trading this month was fairly close to that 30 year average, but yesterday fell well short. Next week (after the 8th) the chart gets much less bullish for a couple of weeks before the holiday bullish bias eventually kicks in around the 21st.
Chart provided courtesy of www.sentimentrader.com
Of course the election could sway this well off the averages, but let's not forget that this 30 year average contains many prior November elections, and in general, stocks have done pretty well going into the end of the year, even during election years.
The S&P 500 (C-fund) is hovering near that key 50-day EMA. We saw a similar look in early September which resulted in a one-day break down that was bought starting the following day. Not that it will turnout the same way, but I suppose it could become a pattern. However, the results, or non-results, of the election could make things very different and obviously the situation is different. One thing that isn't different is that the Fed is almost certainly going to lower interest rates on Thursday, as they lowered them in September.
The fact that they are lowering interest rates without too many signs of trouble in the economy - although last Friday's jobs report was an eye opener - the market should applaud that are coming without a crisis looming.
The DWCPF (S-fund) was up slightly and it didn't quite have the gains of the small caps of the Russell 2000 index, but it was up and it held at those key support lines.
According to the TSP website, "I Fund benchmark index change complete — The transition of the I Fund benchmark to the MSCI All Country World Investable Market Index ex USA ex China ex Hong Kong Index (MSCI ACWI IMI ex USA ex China ex Hong Kong Index) is complete."
So it will be interesting to see what price they give the I-fund on Monday night.
The I-fund: The EFA tracking ETF was up 0.08% yesterday, and the "ex USA ex China ex Hong Kong Index" was down 0.14%. You can see the TSP's eventual final daily price and return posted on our site each evening.
The EFA remained in its descending trading channel and is barely holding onto that September low again. The election result could have a big impact on the dollar, which will certainly have an impact on the I-fund. But when will we know the results?
BND (Bonds / F-fund) had a rare positive day yesterday as yields stopped going up for a day. The trend remains down but that old gap continues to hold as support. The Fed rhetoric on Thursday will probably have more impact on the bond market than the election, since the bond market has been speculating and pricing in election possibilities for months.
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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