Despite many politicians and talking heads dismissing the "arbitrary" downgrade of the US credit rating by Fitch, the stock market took notice and sold off. It could be a one or two day wonder, especially if Apple and Amazon deliver on earnings after the bell today, but if they don't come through maybe we will finally see an overdue pullback in the stocks market. The Dow last 348-points and there were few sectors that survived the selling. Bonds were down again as longer term yields moved higher.
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We talked about the $32 trillion national debt yesterday and beside the incomprehensible amount that it is, the increase in interest rates from 0% to over 5% means interest on that debt is eventually going to be the largest expenditure to the US government. And we shouldn't be concerned?
Whether it matters if some third party ratings agency calls our credit AAA or AA+ is probably debatable, and we've seen this happen before, but if does nothing else but to put this issue front and center to remind us that we are going down a dangerous road if nothing changes, then maybe it's a good thing. As JPMorgan CEO Jamie Dimon said, the financial markets will sort it out and be the ultimate arbiter, and that's what we have to worry about, not the actual grade. The market eventually weeds out the noise from reality, although sometimes it takes longer than we expect.
There are plenty of very smart market analysts and pundits who have been pounding the table on this for years and years, but as of now they've been wrong as far as the stock market goes. The good times may not last much longer, but right now the stock market is not pricing any end to those good times - whether that's the correct outlook, or not.
The market shook the last downgrade off back in 2011, but the markets did get volatile for a while.
The 10-year yield moved up again, closing at 4.08%, but it is currently hitting a previous high that could trigger a double top pullback. Not a peak, but a normal double top temporary dip. We'll see.
The dollar was up yet again yesterday and it hit some key resistance yesterday and stalled, making today's action quite important. Some were questioning why the dollar was up after the downgrade, and that's a good question.
I came across this chart and thought it was interesting, and thought I'd share. Consumer Sentiment, whether rich or poor, tends to move in the same direction but at different degrees. The latest chart shows something interesting in that the sentiment of top income earners is moving up rapidly while the sentiment of the lower income earners is still going down. We saw a small taste of that before 2008.
I also see that sentiment was quite low in 2022, lower than anytime in the last 20 years, but we still haven't had an official recession.
Despite the recent move higher from the top earners' sentiment, both are still trending lower with those lower highs and lower lows.
Several earnings report last night came in better than expected but many of those companies' stocks were trading lower after hours, mostly because of lowered guidance. This could mean another weak open this morning. Can Apple and Amazon save the market from a meaningful pullback? Again, they report after the closing bell today.
The July jobs report comes out before the opening bell tomorrow and estimates are looking for a gain of 200,000 and an unemployment rate of 3.6%.
The S&P 500 (C-fund) gapped down after the Fitch downgrade announcement. The first line of defense, the blue dashed rising support line, was broken and now it is sitting near the 20-day EMA, which has been holding up on recent pullbacks. There's support near 4480 and 4450, but what the bears really want to see is a test of the 50-day EMA which would be a big test for the current rally.
DWCPF (S-fund) also found support near its 20-day EMA making it normal action in a bull market. There are also other "normal" pullback targets noted on the charts if the bleeding continues. That 1775 to 1785 area may be the most important support if it happens to get that low.
EFA (I-fund) had a second day of sharp losses as the strength in the dollar doubled down on the weakness in international stocks. It closed below the 50-day EMA showing us how vulnerable some of the these charts are to swift corrections.
BND (bonds / F-fund) was down with longer-term yields moving up again. It did close well off its lows but it is now back below the 200-day moving average (orange.) It could get a bounce off the prior lows but this chart is looking broken right now as it continues to flounder below the 50 and 200-day EMAs for the last couple of months.
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.
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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We talked about the $32 trillion national debt yesterday and beside the incomprehensible amount that it is, the increase in interest rates from 0% to over 5% means interest on that debt is eventually going to be the largest expenditure to the US government. And we shouldn't be concerned?
Whether it matters if some third party ratings agency calls our credit AAA or AA+ is probably debatable, and we've seen this happen before, but if does nothing else but to put this issue front and center to remind us that we are going down a dangerous road if nothing changes, then maybe it's a good thing. As JPMorgan CEO Jamie Dimon said, the financial markets will sort it out and be the ultimate arbiter, and that's what we have to worry about, not the actual grade. The market eventually weeds out the noise from reality, although sometimes it takes longer than we expect.
There are plenty of very smart market analysts and pundits who have been pounding the table on this for years and years, but as of now they've been wrong as far as the stock market goes. The good times may not last much longer, but right now the stock market is not pricing any end to those good times - whether that's the correct outlook, or not.
The market shook the last downgrade off back in 2011, but the markets did get volatile for a while.
The 10-year yield moved up again, closing at 4.08%, but it is currently hitting a previous high that could trigger a double top pullback. Not a peak, but a normal double top temporary dip. We'll see.
The dollar was up yet again yesterday and it hit some key resistance yesterday and stalled, making today's action quite important. Some were questioning why the dollar was up after the downgrade, and that's a good question.
I came across this chart and thought it was interesting, and thought I'd share. Consumer Sentiment, whether rich or poor, tends to move in the same direction but at different degrees. The latest chart shows something interesting in that the sentiment of top income earners is moving up rapidly while the sentiment of the lower income earners is still going down. We saw a small taste of that before 2008.
I also see that sentiment was quite low in 2022, lower than anytime in the last 20 years, but we still haven't had an official recession.
Despite the recent move higher from the top earners' sentiment, both are still trending lower with those lower highs and lower lows.
Several earnings report last night came in better than expected but many of those companies' stocks were trading lower after hours, mostly because of lowered guidance. This could mean another weak open this morning. Can Apple and Amazon save the market from a meaningful pullback? Again, they report after the closing bell today.
The July jobs report comes out before the opening bell tomorrow and estimates are looking for a gain of 200,000 and an unemployment rate of 3.6%.
The S&P 500 (C-fund) gapped down after the Fitch downgrade announcement. The first line of defense, the blue dashed rising support line, was broken and now it is sitting near the 20-day EMA, which has been holding up on recent pullbacks. There's support near 4480 and 4450, but what the bears really want to see is a test of the 50-day EMA which would be a big test for the current rally.
DWCPF (S-fund) also found support near its 20-day EMA making it normal action in a bull market. There are also other "normal" pullback targets noted on the charts if the bleeding continues. That 1775 to 1785 area may be the most important support if it happens to get that low.
EFA (I-fund) had a second day of sharp losses as the strength in the dollar doubled down on the weakness in international stocks. It closed below the 50-day EMA showing us how vulnerable some of the these charts are to swift corrections.
BND (bonds / F-fund) was down with longer-term yields moving up again. It did close well off its lows but it is now back below the 200-day moving average (orange.) It could get a bounce off the prior lows but this chart is looking broken right now as it continues to flounder below the 50 and 200-day EMAs for the last couple of months.
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.
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.
