Another sell off on Wall Street yesterday as investors position themselves for the inflation / recession debate, which seems to be a no win situation for stocks and we saw that with stocks falling this week whether bond yields and the dollar were up or down. The Dow lost another 351-points on the day so it is now down close to 1000-points since the Fed speech rally. Bonds were up and the I-fund once again led the US TSP stock funds with a more moderate loss.
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The inflation / recession debate is in full force and one may be causing the other, and one has the power to end the other. High inflation over the last year or so has led to the Federal Reserve raising interest rates aggressively this year in an effort to curb it, but in the process it has put the economy in a vulnerable position by slowing economic growth. While we have seen price stabilization in some areas, the labor market has remained hot, and this may keep the Fed in hawkish mode longer than seems needed.
These charts are some evidence that the economy is slowing down, prices are coming down in some areas, and that the interest rate hikes may be working. They are all very economically sensitive commodities: Oil, gasoline, lumber, and copper.
So, yay, the interest rate hikes have successfully pushed economically sensitive prices down by lowering demand, and the economy will suffer. The result may be a recession in 2023, and at this point the question has changed from if and when, to whether we will get a soft or hard landing, meaning how severe will the recession be? Obviously the harder, the worse it will likely be for the stock market.
The Transportation Index fell through its 200-day EMA yesterday but it did close off its lows after rebounding off the 50-day EMA. But being below the 200-day EMA and its rising support keeps this market leader on high alert status.
The bank stocks have also been in trouble and the Bank Index is now reeling toward its 2022 lows again. Notice on this chart, which is comparing the Bank Index (black) and the S&P 500 (red), that at the lows both seem to meet up with each other before rebounding, which is troublesome because the S&P 500 would have to come down to 3700 to get to where the BKX is now, and of course it looks like BKX is still falling.
The CPI report comes out next Tuesday before the opening bell. The last CPI sent stocks soaring higher. The next FOMC meeting and expected rate hike is next Wednesday. The last time the Fed opened his mouth stocks went soaring higher. Of course it sold off shortly afterward. In the interim we will get the PPI - producer prices, on Friday. Not quite the impact of the CPI, but it could move the market.
The S&P 500 (C-fund) has now put together 4 straight lower volume down days after the monster Fed driven high volume rally on November 30th. That high volume trading indicated institutional buying which meant it was pretty serious. The lighter volume pullback could be some modest profit taking, and of course mom and pop getting scared out again. That makes yesterday's break below support suspect. Is this another fake out on the downside this time? Are "they" trying to fill that open gap near 3800 before another rally? Or is this tax selling that could continue up to the holidays? So many possibilities but I am always on the lookout for the big money trying to get us to do the wrong thing so they can take advantage. The chart looks bad, but are "they" up to something?
The DWCPF (S-fund) also broke down yesterday, falling below the rising support line and the 50-day EMA. It flirted with its open gap, and being a more volatile index, I wouldn't be surprised if this overshot on the downside below the gap before any attempt at a snap back rally. This chart looks awful, but that trading volume above in the S&P chart makes me a little suspicious that the smart money may be looking to do some buying again. We'll just have to see what the next week brings with all of its important economic data.
The EFA (I-fund) was down moderately but continues to outperform the US funds, for whatever reason. Perhaps it's the recent weakness in the dollar but this fund has even outperformed on days when the dollar has been up, so I'm not sure. It must be what's happening with some of the Far East markets because Europe's economy seems to be in as much trouble, or more, than ours.
BND (bonds / F-fund) was up nicely yesterday and it may be only a matter of time before the bond market and the stock market decouple and stop going in the same direction, as it has done for most of 2022. The reason would be that interest rates may eventually come down on the weakening economic data next year, which will send bond prices and the F-fund up, while stocks most likely continue to fall. That's a macro-view and obviously won't be a short-term day to day comparison.
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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[TD="width: 338, align: center"] Daily TSP Funds Return
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The inflation / recession debate is in full force and one may be causing the other, and one has the power to end the other. High inflation over the last year or so has led to the Federal Reserve raising interest rates aggressively this year in an effort to curb it, but in the process it has put the economy in a vulnerable position by slowing economic growth. While we have seen price stabilization in some areas, the labor market has remained hot, and this may keep the Fed in hawkish mode longer than seems needed.
These charts are some evidence that the economy is slowing down, prices are coming down in some areas, and that the interest rate hikes may be working. They are all very economically sensitive commodities: Oil, gasoline, lumber, and copper.
So, yay, the interest rate hikes have successfully pushed economically sensitive prices down by lowering demand, and the economy will suffer. The result may be a recession in 2023, and at this point the question has changed from if and when, to whether we will get a soft or hard landing, meaning how severe will the recession be? Obviously the harder, the worse it will likely be for the stock market.
The Transportation Index fell through its 200-day EMA yesterday but it did close off its lows after rebounding off the 50-day EMA. But being below the 200-day EMA and its rising support keeps this market leader on high alert status.
The bank stocks have also been in trouble and the Bank Index is now reeling toward its 2022 lows again. Notice on this chart, which is comparing the Bank Index (black) and the S&P 500 (red), that at the lows both seem to meet up with each other before rebounding, which is troublesome because the S&P 500 would have to come down to 3700 to get to where the BKX is now, and of course it looks like BKX is still falling.
The CPI report comes out next Tuesday before the opening bell. The last CPI sent stocks soaring higher. The next FOMC meeting and expected rate hike is next Wednesday. The last time the Fed opened his mouth stocks went soaring higher. Of course it sold off shortly afterward. In the interim we will get the PPI - producer prices, on Friday. Not quite the impact of the CPI, but it could move the market.
The S&P 500 (C-fund) has now put together 4 straight lower volume down days after the monster Fed driven high volume rally on November 30th. That high volume trading indicated institutional buying which meant it was pretty serious. The lighter volume pullback could be some modest profit taking, and of course mom and pop getting scared out again. That makes yesterday's break below support suspect. Is this another fake out on the downside this time? Are "they" trying to fill that open gap near 3800 before another rally? Or is this tax selling that could continue up to the holidays? So many possibilities but I am always on the lookout for the big money trying to get us to do the wrong thing so they can take advantage. The chart looks bad, but are "they" up to something?
The DWCPF (S-fund) also broke down yesterday, falling below the rising support line and the 50-day EMA. It flirted with its open gap, and being a more volatile index, I wouldn't be surprised if this overshot on the downside below the gap before any attempt at a snap back rally. This chart looks awful, but that trading volume above in the S&P chart makes me a little suspicious that the smart money may be looking to do some buying again. We'll just have to see what the next week brings with all of its important economic data.
The EFA (I-fund) was down moderately but continues to outperform the US funds, for whatever reason. Perhaps it's the recent weakness in the dollar but this fund has even outperformed on days when the dollar has been up, so I'm not sure. It must be what's happening with some of the Far East markets because Europe's economy seems to be in as much trouble, or more, than ours.
BND (bonds / F-fund) was up nicely yesterday and it may be only a matter of time before the bond market and the stock market decouple and stop going in the same direction, as it has done for most of 2022. The reason would be that interest rates may eventually come down on the weakening economic data next year, which will send bond prices and the F-fund up, while stocks most likely continue to fall. That's a macro-view and obviously won't be a short-term day to day comparison.
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.
