Stocks gapped up on Thursday morning after a very choppy and directionless reaction to the Fed's rate cut on Wednesday. Small caps led with a 2% gain but the C and I-funds did nearly as well. Bonds were flat and the dollar fell sharply. There was FOMO in the air, but because of the huge shift in monetary policy, it may have been warranted. The question now is whether seasonality will rain on the bulls' parade.
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Nike was up 10% after hours yesterday after announcing the CEO was retiring. Ouch! That's kind of a slap in the face. Nike is part of the Dow so it could get a boost today.
On the other side FedEx was down about 10% after hours after missing earnings estimates. That should put pressure on the Transportation Index, which we will talk more about below.
For now let's get to the delayed reaction to the Fed's controversial aggressive rate cut.
The 0.50% gave the market reason to believe that inflation is no longer a concern (if the cut doesn't trigger it again.) So a 0.50% cut, something they rarely do in the first cut in a cycle, would seem to suggest the Fed is concerned about economic growth, but Powell said they are not. Maybe they are concerned about the labor market? Powell says, no. So was it political, or something else?
The biggest and most logical reason for the Fed's 0.50% move is that the 2-Year Treasury yield has been heading lower for months, and the Fed allows tends to follow it. They have been falling behind the curve but I think their concern about inflation kept them from acting. This chart was the 2-year yield vs. the Fed Funds Rate before Wednesday's cut showing the FFR was lagging. Now they are both below 5%, but the 2-year yield is actually now below 4%, so there's more for the Fed to go.
Whatever the case, the combination between the half point cut with more to come, and the Fed loosening monetary policy by adding liquidity to the system, is certainly a stiff breeze at the back of the stock market.
Next week we start the worst week of the year, on average, for stocks historically. That's a breeze in the face of the stocks market. Will the one breeze outweigh the other or will the two apposing winds cause a hurricane? I guess it depends if just one is hot air. Any meteorologist out there want to help?
Yesterday the longer-term yields were up again, but they too had been moving sharply lower and it could just be a relief rally, while still trending lower.
The dollar was down sharply as well, and the rally in the dollar on Wednesday proved to be a fake out. That wasn't a typical reaction to a dramatic rate cut on Wednesday, so yesterday it fell back down, and the chart looks bearish unless the double bottom holds and maybe it will because the caveat here is that the big positive outside reversal day on Wednesday. That may indicate the the upside is going to win here. We should know soon enough.
The Dow Transportation Index has been soaring in the last couple of weeks but it hit resistance at yesterday's highs and backed off some, and then after hours FedEx was down about 10% so this could see a needed digestion of the recent 1200-point spike higher off the September low.
Looking out a little further, this is where the Transports has run into some trouble as it has struggled for three years trying to recapture the all time highs above 18,000. And this is important because the Transports are one of the better gauges of the economy.
Were you in the NFL Survivor Pool and got knocked out? Still in it, or just missed getting in? We have a Revival pool starting this weekend. More info.
The S&P 500 (SPY / C-fund) gapped up yesterday and it was the 2nd largest gap up ever when at a new high. The inverted head and shoulders pattern did break out. Now a typical reaction would be more upside, but an eventual retest of the neckline breakout area, and if it does that will it eventually fill in the open gap as well, or was this a gap and go situation, thanks to the Fed? The spinning top candlestick is not the best look, but it may be a little deceiving because of the gap up. The day officially starts at Wednesday's close - the bottom of that open gap.
The DWCPF (S-fund) also gapped up and made a new high. It's not an all-time high yet as that was in 2021 when it hit 2400, so there's a long way to go, and there is some resistance near 2200.
On Thursday the EFA suggested a gain of 1.98% for the I-fund, and the new "ex USA ex China ex Hong Kong Index" for lack of a better name, was up 1.45%. Again, when the TSP posts Thursday's I-fund price and return, I'll get a better idea which to use. One thing I have noticed about the latter Index is that it trades all day because of the wider global reach from South America to New Zealand and everything in between, so the return is changing all the time.
I'm on the lookout for an ETF that will be similar to the EFA, using MSCI ACWI IMI ex USA ex China ex Hong Kong Index, which is the new approach. They are taking out China and Hong Kong and adding countries like India, New Zealand, and Brazil. Here's more information from tsp.gov.
BND (F-fund) was flat after a weak open. This has now pulled back to almost test the support in the 75 area. There's still a little room on the downside if this is going to test and hold at the bottom of the ascending channel. Just staying flat could do that as well.
Thanks so much for reading! Have a great weekend!
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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Nike was up 10% after hours yesterday after announcing the CEO was retiring. Ouch! That's kind of a slap in the face. Nike is part of the Dow so it could get a boost today.
On the other side FedEx was down about 10% after hours after missing earnings estimates. That should put pressure on the Transportation Index, which we will talk more about below.
For now let's get to the delayed reaction to the Fed's controversial aggressive rate cut.
The 0.50% gave the market reason to believe that inflation is no longer a concern (if the cut doesn't trigger it again.) So a 0.50% cut, something they rarely do in the first cut in a cycle, would seem to suggest the Fed is concerned about economic growth, but Powell said they are not. Maybe they are concerned about the labor market? Powell says, no. So was it political, or something else?
The biggest and most logical reason for the Fed's 0.50% move is that the 2-Year Treasury yield has been heading lower for months, and the Fed allows tends to follow it. They have been falling behind the curve but I think their concern about inflation kept them from acting. This chart was the 2-year yield vs. the Fed Funds Rate before Wednesday's cut showing the FFR was lagging. Now they are both below 5%, but the 2-year yield is actually now below 4%, so there's more for the Fed to go.
Whatever the case, the combination between the half point cut with more to come, and the Fed loosening monetary policy by adding liquidity to the system, is certainly a stiff breeze at the back of the stock market.
Next week we start the worst week of the year, on average, for stocks historically. That's a breeze in the face of the stocks market. Will the one breeze outweigh the other or will the two apposing winds cause a hurricane? I guess it depends if just one is hot air. Any meteorologist out there want to help?
Yesterday the longer-term yields were up again, but they too had been moving sharply lower and it could just be a relief rally, while still trending lower.
The dollar was down sharply as well, and the rally in the dollar on Wednesday proved to be a fake out. That wasn't a typical reaction to a dramatic rate cut on Wednesday, so yesterday it fell back down, and the chart looks bearish unless the double bottom holds and maybe it will because the caveat here is that the big positive outside reversal day on Wednesday. That may indicate the the upside is going to win here. We should know soon enough.
The Dow Transportation Index has been soaring in the last couple of weeks but it hit resistance at yesterday's highs and backed off some, and then after hours FedEx was down about 10% so this could see a needed digestion of the recent 1200-point spike higher off the September low.
Looking out a little further, this is where the Transports has run into some trouble as it has struggled for three years trying to recapture the all time highs above 18,000. And this is important because the Transports are one of the better gauges of the economy.
Were you in the NFL Survivor Pool and got knocked out? Still in it, or just missed getting in? We have a Revival pool starting this weekend. More info.
The S&P 500 (SPY / C-fund) gapped up yesterday and it was the 2nd largest gap up ever when at a new high. The inverted head and shoulders pattern did break out. Now a typical reaction would be more upside, but an eventual retest of the neckline breakout area, and if it does that will it eventually fill in the open gap as well, or was this a gap and go situation, thanks to the Fed? The spinning top candlestick is not the best look, but it may be a little deceiving because of the gap up. The day officially starts at Wednesday's close - the bottom of that open gap.
The DWCPF (S-fund) also gapped up and made a new high. It's not an all-time high yet as that was in 2021 when it hit 2400, so there's a long way to go, and there is some resistance near 2200.
On Thursday the EFA suggested a gain of 1.98% for the I-fund, and the new "ex USA ex China ex Hong Kong Index" for lack of a better name, was up 1.45%. Again, when the TSP posts Thursday's I-fund price and return, I'll get a better idea which to use. One thing I have noticed about the latter Index is that it trades all day because of the wider global reach from South America to New Zealand and everything in between, so the return is changing all the time.
I'm on the lookout for an ETF that will be similar to the EFA, using MSCI ACWI IMI ex USA ex China ex Hong Kong Index, which is the new approach. They are taking out China and Hong Kong and adding countries like India, New Zealand, and Brazil. Here's more information from tsp.gov.
BND (F-fund) was flat after a weak open. This has now pulled back to almost test the support in the 75 area. There's still a little room on the downside if this is going to test and hold at the bottom of the ascending channel. Just staying flat could do that as well.
Thanks so much for reading! Have a great weekend!
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.
