Stocks battled back from a Monday morning gap down to close with moderate gains. That's pretty impressive given the uncertainty of this week's economic calendar. Surprisingly, the number of stocks up on the day was about the same as the number of stocks down, but when big tech is leading, that's what happens. Yields and the dollar were up, so stocks were actually swimming against the current making the rally that much more impressive.
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The 10-year Treasury Yield moved up again after Friday's jobs report which came in a little hot. Despite higher yields and a move back above the 50-day EMA, stocks did not fall, and that's good news for the bulls. As I have said before, its the direction as well as the speed of the move in that direction, that impacts stocks more than just yields trading in a range. However, if this starts to move near the recent highs again, the stock market will not be happy.
The dollar was up again as well, after breaking above a bull flag on Friday so, like Friday, the I-fund lagged on the day due to the dollar's strength.
The 2-year / 10-year yield curve reminds us that we are still in the "irregular" period where shorter term yields are paying more than longer-term yields. It's been that way for nearly two years now, which was triggered when the Fed started to raise interest rates in 2022 because of elevating inflation.
This is not an exact science but you can see below that when the 2/10 yield curve starts to steepen (un-invert, if you will) that's when the stock market tends to struggle. We've seen the yield curve come off its lows but it is still inverted and, going back 30+ years, it remain in some uncharted negative territory not seen since the dot com bubble. Eventually this will steepen to more normal levels but the stock market will most likely react the way it has during other steepening periods coming off the lows, which isn't good.
We could be a long way away from that because we haven't even had a recession or anything close yet, which is almost always the outcome of an inverted yield curve, and the Fed is still strongly considering cutting rates, not hiking. As I said, the current inversion is almost 2 years old and so far history has not repeated itself. Many are still calling for a recession, but isn't someone always doing that?
I know I have been concerned by the most recent Chicago PMI report. I posted this data last week and you can see that the fall off in Manufacturing in this report is comparable only to the time before financial crisis of 2008 and during the COVID recession. Is this an anomaly or a warning?
Source: Chicago PMI Unexpectedly Craters To Depression Levels | ZeroHedge
That was probably as clear as mud and just as interesting, but that's how my mind is looking at this situation. The economy has shown itself to stay healthy, but we have seen a few concerning warning signs. With that, the S&P 500 has looked invincible and potentially ready to breakout, but small caps are lagging.
Then there's the economically sensitive Dow Transports, which had a big day yesterday, however this chart is still in big trouble.
We'll get the CPI and PPI inflation reports on Wednesday and Thursday respectively, and then the FOMC meeting with a decision on interest rates on Wednesday. The Fed is not expected to move rates at this meeting, but they should provide clues as to which way they are leaning, so it could be a market mover.
The S&P 500 (C-fund) is in a decent looking formation with some overhead resistance. It wouldn't surprise me to see the inflation reports this week, and / or the Fed to send this above that resistance line, then a rug pull once the emotions settle down. It looks good but with small caps struggling, I'm not too sure how long big tech alone can keep this going.
DWCPF (S-fund) had a big day after a weak open, and that looks like a positive reversal day. However the chart remains in a descending trading channel after failing at the 50-day EMA. That could all be erased with a breakout above 2020, but until then the bears seem to have control here right now.
The EFA (I-fund) also had a positive reversal despite the small loss on the day. This looks good but could be "toppy" if that failed breakout at the double top doesn't improve soon. Support looks firm above 79.50 - 80.50.
BND (bonds / F-fund) was down again as yields moved higher. Not a bad looking chart but there are several open gaps that may need to get filled above and below the current area, before it picks a direction.
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
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.
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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[TD="width: 283, align: center"] Daily TSP Funds Return
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The 10-year Treasury Yield moved up again after Friday's jobs report which came in a little hot. Despite higher yields and a move back above the 50-day EMA, stocks did not fall, and that's good news for the bulls. As I have said before, its the direction as well as the speed of the move in that direction, that impacts stocks more than just yields trading in a range. However, if this starts to move near the recent highs again, the stock market will not be happy.
The dollar was up again as well, after breaking above a bull flag on Friday so, like Friday, the I-fund lagged on the day due to the dollar's strength.
The 2-year / 10-year yield curve reminds us that we are still in the "irregular" period where shorter term yields are paying more than longer-term yields. It's been that way for nearly two years now, which was triggered when the Fed started to raise interest rates in 2022 because of elevating inflation.
This is not an exact science but you can see below that when the 2/10 yield curve starts to steepen (un-invert, if you will) that's when the stock market tends to struggle. We've seen the yield curve come off its lows but it is still inverted and, going back 30+ years, it remain in some uncharted negative territory not seen since the dot com bubble. Eventually this will steepen to more normal levels but the stock market will most likely react the way it has during other steepening periods coming off the lows, which isn't good.
We could be a long way away from that because we haven't even had a recession or anything close yet, which is almost always the outcome of an inverted yield curve, and the Fed is still strongly considering cutting rates, not hiking. As I said, the current inversion is almost 2 years old and so far history has not repeated itself. Many are still calling for a recession, but isn't someone always doing that?
I know I have been concerned by the most recent Chicago PMI report. I posted this data last week and you can see that the fall off in Manufacturing in this report is comparable only to the time before financial crisis of 2008 and during the COVID recession. Is this an anomaly or a warning?
Source: Chicago PMI Unexpectedly Craters To Depression Levels | ZeroHedge
That was probably as clear as mud and just as interesting, but that's how my mind is looking at this situation. The economy has shown itself to stay healthy, but we have seen a few concerning warning signs. With that, the S&P 500 has looked invincible and potentially ready to breakout, but small caps are lagging.
Then there's the economically sensitive Dow Transports, which had a big day yesterday, however this chart is still in big trouble.
We'll get the CPI and PPI inflation reports on Wednesday and Thursday respectively, and then the FOMC meeting with a decision on interest rates on Wednesday. The Fed is not expected to move rates at this meeting, but they should provide clues as to which way they are leaning, so it could be a market mover.
The S&P 500 (C-fund) is in a decent looking formation with some overhead resistance. It wouldn't surprise me to see the inflation reports this week, and / or the Fed to send this above that resistance line, then a rug pull once the emotions settle down. It looks good but with small caps struggling, I'm not too sure how long big tech alone can keep this going.
DWCPF (S-fund) had a big day after a weak open, and that looks like a positive reversal day. However the chart remains in a descending trading channel after failing at the 50-day EMA. That could all be erased with a breakout above 2020, but until then the bears seem to have control here right now.
The EFA (I-fund) also had a positive reversal despite the small loss on the day. This looks good but could be "toppy" if that failed breakout at the double top doesn't improve soon. Support looks firm above 79.50 - 80.50.
BND (bonds / F-fund) was down again as yields moved higher. Not a bad looking chart but there are several open gaps that may need to get filled above and below the current area, before it picks a direction.
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
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.
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.
