The Magnificent 7 couldn't help the stock market yesterday so we had one of those days where all three of the major indices, plus the small caps, went down. The Nasdaq gave up its 20K milestone already after just one day above it. A warmer than expected PPI report sent yields higher, and that triggered some selling in stocks. We're still in that mid-December funky period, but the calendar gets a little better next week.
Here's the PPI data from briefing.com, along with their forecasts.
Producer Price Index
Actual: 0.4%
B.com Forecast: 0.2%
Prior: 0.3%
Revised From: 0.2%
Core PPI
Actual: 0.2%
B.com Forecast: 0.2%
Prior: 0.3%
Not only did the PPI come in 0.2% above estimates, but they revised October up to 0.3% from 0.2%. The Core PPI (excludes food and energy) actually fell. The year over year PPI is back to 3.0%, and the Core PPI was up 3.4%, so inflation is still in the picture.
Yields and the dollar moved up on the data and this isn't what the bulls really want to see. They could be backing and fill the open gap from November, or they could be making higher lows, which could lead to higher highs, and that would probably mean that inflation is getting priced in again.
It's possible that the 10-year is range-bound, as I keep saying, and maybe that's more hoping than anything. Yields don't sit still, but the stock market prefers a more stable yield over a volatile yield, no matter which way they are moving.
The chances of an interest rate cut at next week's FOMC meeting is still 95%, but this will certainly give the Fed something to think about with this being the last major inflation data until that meeting - that is unless they get some early data that we don't. The PCE Prices report comes out two days after their meeting.
There's still two and half weeks left in December trading and the Santa Claus rally doesn't officially start until the 5 trading days before Christmas so, as the historical (30 year) chart suggests, we could have a little more choppiness coming, but there are more signs of seasonal bullishness on the chart next week than we had this week.
Chart provided courtesy of www.sentimentrader.com
That's the good news. The bad news -- This X post from sentimentrader.com is certainly concerning:
"[Yesterday was] the S&P 500's 9th consecutive session with negative breadth.
"That's happened fewer than 20 times in ~70 years. On average, the S&P has been -12% from its high during these streaks.
"Today marks the closest the S&P has been to its high. The 2 most similar were Dec 1961 and Feb 1966, both w/in 2% of a high at the time."
I did notice that this only happened once in December and that was closer to the end of the month on the 26th. And it was in 1961. A week later stocks were higher, but it went wrong from there with stocks down 26% over the next six months.
Source: https://x.com/jasongoepfert/status/1867309528573956329
Trying to look at the glass half full, there are 2+ weeks left in the year and after two week the average return after this streak is -0.01%. And none of those were the weeks leading up to Christmas. Plus the last three times this happened (2021, 2019, and 2018), two weeks later stocks were up each time, and actually the returns were quite good on several time frames.
So we have some red flags to deal with, but a bullish scenario that we don't get very often - a Fed still cutting interest rates, a pro-growth, lower taxes administration coming in, inflation under control - although a little stickier than we want, strong earnings - although valuations are high. It's a matter of how much of this is priced in, and is there room for more upside?
It's tough to say because stocks tend to struggle this time in December, so is it a real problem, or just a seasonal blip?
The S&P 500 (C-fund) is going through a bit of a choppy period, which is right on cue with the December seasonality calendar, but the action under the surface has been worse than this chart shows. But, as we have seen in previous years, the big tech stocks can carry the market for a long time. And even the small caps are participating lately. While it's certainly possible that stocks fall into the end of the year, it's not typical. But it could chop around a little while longer.
DWCPF (S-fund) takes those big hits on down days and if yields keep going up the rotation story could run into trouble. Right now the S-fund chart is holding at the 20-day EMA and we've seen this before. It's even had a few closes below the average in the last few months, but it has bounced back each time.
ACWX (The I-fund tracking index) was down 0.78% yesterday, the I-fund was given a 0.66% loss. You can see the updated I-fund and other TSP share prices and returns, usually posted daily by 8:30 PM ET here: https://www.tsptalk.com/tsp_share_prices.php
BND (bonds / F-fund) is slipping deeper as those yields creep higher. The close below the moving averages and the rising support line is not encouraging for bonds.
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.
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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 came into Thursday with Adobe's earnings already weighing on the market but the PPI added to the downside pressure, and that pressure never really abated all day.Here's the PPI data from briefing.com, along with their forecasts.
Producer Price Index
Actual: 0.4%
B.com Forecast: 0.2%
Prior: 0.3%
Revised From: 0.2%
Core PPI
Actual: 0.2%
B.com Forecast: 0.2%
Prior: 0.3%
Not only did the PPI come in 0.2% above estimates, but they revised October up to 0.3% from 0.2%. The Core PPI (excludes food and energy) actually fell. The year over year PPI is back to 3.0%, and the Core PPI was up 3.4%, so inflation is still in the picture.
Yields and the dollar moved up on the data and this isn't what the bulls really want to see. They could be backing and fill the open gap from November, or they could be making higher lows, which could lead to higher highs, and that would probably mean that inflation is getting priced in again.
It's possible that the 10-year is range-bound, as I keep saying, and maybe that's more hoping than anything. Yields don't sit still, but the stock market prefers a more stable yield over a volatile yield, no matter which way they are moving.
The chances of an interest rate cut at next week's FOMC meeting is still 95%, but this will certainly give the Fed something to think about with this being the last major inflation data until that meeting - that is unless they get some early data that we don't. The PCE Prices report comes out two days after their meeting.
There's still two and half weeks left in December trading and the Santa Claus rally doesn't officially start until the 5 trading days before Christmas so, as the historical (30 year) chart suggests, we could have a little more choppiness coming, but there are more signs of seasonal bullishness on the chart next week than we had this week.
Chart provided courtesy of www.sentimentrader.com
That's the good news. The bad news -- This X post from sentimentrader.com is certainly concerning:
"[Yesterday was] the S&P 500's 9th consecutive session with negative breadth.
"That's happened fewer than 20 times in ~70 years. On average, the S&P has been -12% from its high during these streaks.
"Today marks the closest the S&P has been to its high. The 2 most similar were Dec 1961 and Feb 1966, both w/in 2% of a high at the time."
I did notice that this only happened once in December and that was closer to the end of the month on the 26th. And it was in 1961. A week later stocks were higher, but it went wrong from there with stocks down 26% over the next six months.
Source: https://x.com/jasongoepfert/status/1867309528573956329
Trying to look at the glass half full, there are 2+ weeks left in the year and after two week the average return after this streak is -0.01%. And none of those were the weeks leading up to Christmas. Plus the last three times this happened (2021, 2019, and 2018), two weeks later stocks were up each time, and actually the returns were quite good on several time frames.
So we have some red flags to deal with, but a bullish scenario that we don't get very often - a Fed still cutting interest rates, a pro-growth, lower taxes administration coming in, inflation under control - although a little stickier than we want, strong earnings - although valuations are high. It's a matter of how much of this is priced in, and is there room for more upside?
It's tough to say because stocks tend to struggle this time in December, so is it a real problem, or just a seasonal blip?
The S&P 500 (C-fund) is going through a bit of a choppy period, which is right on cue with the December seasonality calendar, but the action under the surface has been worse than this chart shows. But, as we have seen in previous years, the big tech stocks can carry the market for a long time. And even the small caps are participating lately. While it's certainly possible that stocks fall into the end of the year, it's not typical. But it could chop around a little while longer.
DWCPF (S-fund) takes those big hits on down days and if yields keep going up the rotation story could run into trouble. Right now the S-fund chart is holding at the 20-day EMA and we've seen this before. It's even had a few closes below the average in the last few months, but it has bounced back each time.
ACWX (The I-fund tracking index) was down 0.78% yesterday, the I-fund was given a 0.66% loss. You can see the updated I-fund and other TSP share prices and returns, usually posted daily by 8:30 PM ET here: https://www.tsptalk.com/tsp_share_prices.php
BND (bonds / F-fund) is slipping deeper as those yields creep higher. The close below the moving averages and the rising support line is not encouraging for bonds.
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.php
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.
