Stocks were lower on Monday but it wasn't all bad as we saw some buying in the final hour of trading to take the indices well off the earlier lows of the day. That final hour tends to be considered more of the "smart money" activity, but yesterday it could have also been some follow up positive momentum after last week's big rally. The Dow lost 202-points on the day with Boeing being drag on the index after the horrific plane crash in China. Bonds were down as yields and the price of oil spiked, which is not a good combination for the stock market.
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The yield on the 10-year Treasury spiked higher and is now over 2.3%. This is a headwind for the stock market as investors may appreciate a 2.3% return in bonds rather than the volatility of the stock market, plus it puts more pressure on the Fed to raise rates, and they are now pricing in a 41% chance of another 0.25% hike in May, but a 59% chance of another 0.50% hike at that next meeting.
That spike in yields also push the 2-year / 10-year yield curve sharply lower and it stands now at 0.17. A move below 0.00 (an inverted yield) is generally considered a prelude to a recession in the coming months. It's not there yet, but the last inverted curve came in the late summer of 2019, and of course we had a recession in 2020.
The price of oil rallied almost $7 yesterday, pushing the price of a barrel to near $110, which looks like a key pivot point.
Any comparisons between the current market condition and the bottom of the bear markets in 2008 or 2020 have a couple of big differences. The Fed was easing monetary conditions in 2008 and 2020 rather than raising interest rates, and inflation was not a factor back then. Does that make it different this time? You have to say at least somewhat.
The S&P 500 (C-fund) was flat but the action wasn't all that bad. It made a higher high over Friday's high, and it closed above some key moving averages. The bears however, were able to slow the rally, but that's typical after a move like we saw last week. Some sideways action wouldn't be unusual here, but this week does have a negative seasonal bias.
The DWCPF (small caps / S-fund) closed off the lows but had a meaningful loss as small caps lagged yesterday. It closed back below its 50-day EMA, so that's a technical concern, but it is still right in the neighborhood. There is still an open gap below 1850.
The EFA (I-fund) was down and of course we have to mention that the dollar was up, adding to the downside pressure. It remained below the 50-day EMA. There is an open gap down near 70.
BND (Bonds / F-fund) did a belly flop as the yields spiked higher and we saw a new closing low.
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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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Along with rising oil prices, the Fed was another catalyst yesterday as Jerome Powell noted yesterday that inflation is more of a concern than they anticipated. Why he didn't weigh more heavily on this last week at their FOMC meeting, I don't know, but it didn't help the market.
It's tough to gauge too much from Monday's action because getting a digestion day after the big 4-day rally is typical, but also stocks don't tend to just flip right back over without some kind of headline. The S&P closing near flat after the intraday sell off looks good, but small caps lagged all day, so I see the action as fairly neutral with the bulls and bears sorting things out before the next move.
We've seen similar consolation after prior spikes higher since the market started to peak a few months ago. Unfortunately for the bulls, most of those consolidations resolved themselves on the downside.
It's tough to gauge too much from Monday's action because getting a digestion day after the big 4-day rally is typical, but also stocks don't tend to just flip right back over without some kind of headline. The S&P closing near flat after the intraday sell off looks good, but small caps lagged all day, so I see the action as fairly neutral with the bulls and bears sorting things out before the next move.
We've seen similar consolation after prior spikes higher since the market started to peak a few months ago. Unfortunately for the bulls, most of those consolidations resolved themselves on the downside.
The yield on the 10-year Treasury spiked higher and is now over 2.3%. This is a headwind for the stock market as investors may appreciate a 2.3% return in bonds rather than the volatility of the stock market, plus it puts more pressure on the Fed to raise rates, and they are now pricing in a 41% chance of another 0.25% hike in May, but a 59% chance of another 0.50% hike at that next meeting.
That spike in yields also push the 2-year / 10-year yield curve sharply lower and it stands now at 0.17. A move below 0.00 (an inverted yield) is generally considered a prelude to a recession in the coming months. It's not there yet, but the last inverted curve came in the late summer of 2019, and of course we had a recession in 2020.
The price of oil rallied almost $7 yesterday, pushing the price of a barrel to near $110, which looks like a key pivot point.
Any comparisons between the current market condition and the bottom of the bear markets in 2008 or 2020 have a couple of big differences. The Fed was easing monetary conditions in 2008 and 2020 rather than raising interest rates, and inflation was not a factor back then. Does that make it different this time? You have to say at least somewhat.
The S&P 500 (C-fund) was flat but the action wasn't all that bad. It made a higher high over Friday's high, and it closed above some key moving averages. The bears however, were able to slow the rally, but that's typical after a move like we saw last week. Some sideways action wouldn't be unusual here, but this week does have a negative seasonal bias.
The DWCPF (small caps / S-fund) closed off the lows but had a meaningful loss as small caps lagged yesterday. It closed back below its 50-day EMA, so that's a technical concern, but it is still right in the neighborhood. There is still an open gap below 1850.
The EFA (I-fund) was down and of course we have to mention that the dollar was up, adding to the downside pressure. It remained below the 50-day EMA. There is an open gap down near 70.
BND (Bonds / F-fund) did a belly flop as the yields spiked higher and we saw a new closing low.
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 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.
