The market got "JOLTed" yesterday, or at least that was the excuse for the lackluster performance in stocks and the sharp decline in bond yields. JOLTS is the Job openings report and it came in lighter than expected suggesting more signs of weakness in the labor market. Stocks were very choppy but traded in a more narrow range yesterday vs. Tuesday, but the bears were able to keep the pressure on and keep the indices in the red for the day, although the Dow managed a small gain.
[TABLE="align: center"]
[TR]
[TD="align: center"]
[/TD]
[TD]
[/TD]
[TD="width: 311, align: center"] Daily TSP Funds Return
[TABLE="align: center"]
[TR]
[TD="align: right"][/TD]
[/TR]
[/TABLE]
[/TD]
[/TR]
[/TABLE]
Caution! Interest rate and yield commentary below. It's too late for me, but you still have time to run. :^)
We are starting to see the effects of the Fed's very hawkish monetary policy over the last two years and that was actually the plan as they tried to get inflation under control. They seemed to have done that but so far they have not cut those interest rates back at all even though their assault on inflation seems to be successful.
Inflation is not something that is either on or off. It is something that can easily show its head again and get out of control, and that is what the Fed has been concerned about. So, they've stubbornly held rates over 5%, although the plan is to start cutting this month.
Now the labor market is feeling the effects and that could get worse before getting better, so cutting rates might not only help the jobs environment, but could have the effect of stimulating the economy.
What investors have been concerned about is that the series of rate hikes might not have fully permeated into the economy yet, meaning we could still see the economy show the negative effects of those higher yields. It can take months or years to get the full brunt of a 5% hike.
While we haven't seen a recession yet, the bond market has been acting as if it expects some weakness. Ironically it's not bond yields that follow the Fed Funds rate, it's the Fed that follows yields, particularly the 2-year yield, and in recent months the 2-year Treasury Yield has been telling the Fed to start cutting.
The 10-year Treasury Yield is also falling again after last week pre-holiday reversal to the upside. The loss today broke below a pennant-like formation.
Yesterday the 2-year yield briefly fell below the 10-year yield - where it is supposed to be, for the first time in a couple of years, although it didn't close that way.
When the 2-year is higher than the 10-year it is considered inverted, and inverted 2/10 yield curves has a history of preceding a recession by several months to up to 2 years or so, so we are definitely on the long end of that being that we have had no recession yet, and the inversion has been around since July of 2022.
The debate now is whether the Fed cutting rates will stimulate the economy and / or send stocks higher. History suggests that stocks do not do well when the yield curve "de-inverts" or steepens. BUT most recent examples over the last 30 years were NOT rate cuts used to take back rate hikes caused by inflation, but rather rate cuts to stimulate a weakening economy. So many it is different this time? I don't know.
Oil was down another 1.6% yesterday to 69.20 a barrel. Again, this could be a sign of economic weakness, or the Trump effect if he increases production. Of course that would assume a Trump victory and the polls are still pretty tight so I don't know how much of a Trump effect is actually getting priced in, so it may be the economy thing. Whatever it is, lower oil prices means savings on gasoline and that acts like a tax cut for consumers. Combine that with the rate cuts coming and we certainly have the makings of economic stimulus.
Things take time to propagate through the system, but the stock market is a leading indicator and that may be telling us that this pullback is setting up a good buying opportunity. But let's let the digestion of the 7% rally in stocks off the August lows play out. Nobody said a rotation out of tech and into the broader, small companies wasn't going to be bumpy, and with seasonality in September and October being what it is, the stock market does have some short-term headwinds.
The jobs report on Friday will be a big catalyst as all of this plays out. Estimates are looking for a gain of about 165,000 jobs in August after the 114,000 miss last month. The unemployment rate is expected to come in at 4.2%.
The August AutoTracker winners have been posted and it was a wild month! Here are the winners and here are the monthly and annual (non-premium members) standings through August. Track your return on the AutoTracker - it's free!
Administrative Note: It's time for the 2024 NFL Survivor Contest. It's easy, and free! Deadline is Sunday Sep 8 at 1 PM ET: More information.
The S&P 500 (C-fund) was down modestly yesterday but it closed off its lows, and the top of that open gap held for a second day. That's good news, but with the jobs report coming up tomorrow, it's hard to say that's going to continue to hold. I say, just fill the gap and get it over with!
The DWCPF (S-fund) was down and closed below the 50-day EMA for the first times since August 14. The open gap is still there for the taking, and the inverted head and shoulders pattern is still legitimate and, as we talked about the other day, we did see that right shoulder get filled this week. There is some support in the 2030 - 2040 area, but now that the right shoulder if filled, it could actually hold here as well. I don't know about that but there are a lot of catalyst this month to push and pull this in either direction.
The EFA (I-fund) was down again as it eyes the first open gap down by 80.50. This could be considered a failed breakout but we could give it some leeway and say it's just a double top pullback. The DT pullback would be a less severe development. Either way, let's get a gap or two filled before resuming the upside, otherwise I have to keep talking about them.
BND (F-fund) finally broke out of the cup and handle formation. That looks bullish for bonds but what happens if the jobs report comes in stronger than expected? Yields might spike and this could come back down. Bottom line, I don't know what is going to happen but I know a breakout is a bullish sign, so it needs to hold.
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.
[TABLE="align: center"]
[TR]
[TD="align: center"]

[TD]
[/TD]
[TD="width: 311, align: center"] Daily TSP Funds Return

[TR]
[TD="align: right"][/TD]
[/TR]
[/TABLE]
[/TD]
[/TR]
[/TABLE]
Caution! Interest rate and yield commentary below. It's too late for me, but you still have time to run. :^)
We are starting to see the effects of the Fed's very hawkish monetary policy over the last two years and that was actually the plan as they tried to get inflation under control. They seemed to have done that but so far they have not cut those interest rates back at all even though their assault on inflation seems to be successful.
Inflation is not something that is either on or off. It is something that can easily show its head again and get out of control, and that is what the Fed has been concerned about. So, they've stubbornly held rates over 5%, although the plan is to start cutting this month.
Now the labor market is feeling the effects and that could get worse before getting better, so cutting rates might not only help the jobs environment, but could have the effect of stimulating the economy.
What investors have been concerned about is that the series of rate hikes might not have fully permeated into the economy yet, meaning we could still see the economy show the negative effects of those higher yields. It can take months or years to get the full brunt of a 5% hike.
While we haven't seen a recession yet, the bond market has been acting as if it expects some weakness. Ironically it's not bond yields that follow the Fed Funds rate, it's the Fed that follows yields, particularly the 2-year yield, and in recent months the 2-year Treasury Yield has been telling the Fed to start cutting.

The 10-year Treasury Yield is also falling again after last week pre-holiday reversal to the upside. The loss today broke below a pennant-like formation.

Yesterday the 2-year yield briefly fell below the 10-year yield - where it is supposed to be, for the first time in a couple of years, although it didn't close that way.

When the 2-year is higher than the 10-year it is considered inverted, and inverted 2/10 yield curves has a history of preceding a recession by several months to up to 2 years or so, so we are definitely on the long end of that being that we have had no recession yet, and the inversion has been around since July of 2022.
The debate now is whether the Fed cutting rates will stimulate the economy and / or send stocks higher. History suggests that stocks do not do well when the yield curve "de-inverts" or steepens. BUT most recent examples over the last 30 years were NOT rate cuts used to take back rate hikes caused by inflation, but rather rate cuts to stimulate a weakening economy. So many it is different this time? I don't know.
Oil was down another 1.6% yesterday to 69.20 a barrel. Again, this could be a sign of economic weakness, or the Trump effect if he increases production. Of course that would assume a Trump victory and the polls are still pretty tight so I don't know how much of a Trump effect is actually getting priced in, so it may be the economy thing. Whatever it is, lower oil prices means savings on gasoline and that acts like a tax cut for consumers. Combine that with the rate cuts coming and we certainly have the makings of economic stimulus.
Things take time to propagate through the system, but the stock market is a leading indicator and that may be telling us that this pullback is setting up a good buying opportunity. But let's let the digestion of the 7% rally in stocks off the August lows play out. Nobody said a rotation out of tech and into the broader, small companies wasn't going to be bumpy, and with seasonality in September and October being what it is, the stock market does have some short-term headwinds.
The jobs report on Friday will be a big catalyst as all of this plays out. Estimates are looking for a gain of about 165,000 jobs in August after the 114,000 miss last month. The unemployment rate is expected to come in at 4.2%.
The August AutoTracker winners have been posted and it was a wild month! Here are the winners and here are the monthly and annual (non-premium members) standings through August. Track your return on the AutoTracker - it's free!
Administrative Note: It's time for the 2024 NFL Survivor Contest. It's easy, and free! Deadline is Sunday Sep 8 at 1 PM ET: More information.
The S&P 500 (C-fund) was down modestly yesterday but it closed off its lows, and the top of that open gap held for a second day. That's good news, but with the jobs report coming up tomorrow, it's hard to say that's going to continue to hold. I say, just fill the gap and get it over with!

The DWCPF (S-fund) was down and closed below the 50-day EMA for the first times since August 14. The open gap is still there for the taking, and the inverted head and shoulders pattern is still legitimate and, as we talked about the other day, we did see that right shoulder get filled this week. There is some support in the 2030 - 2040 area, but now that the right shoulder if filled, it could actually hold here as well. I don't know about that but there are a lot of catalyst this month to push and pull this in either direction.

The EFA (I-fund) was down again as it eyes the first open gap down by 80.50. This could be considered a failed breakout but we could give it some leeway and say it's just a double top pullback. The DT pullback would be a less severe development. Either way, let's get a gap or two filled before resuming the upside, otherwise I have to keep talking about them.

BND (F-fund) finally broke out of the cup and handle formation. That looks bullish for bonds but what happens if the jobs report comes in stronger than expected? Yields might spike and this could come back down. Bottom line, I don't know what is going to happen but I know a breakout is a bullish sign, so it needs to hold.

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.