Stocks continued their push off the recent lows and whether the lows are in or not, it seems like relief rallies, and / or pullbacks, tend to go further than we ever expect. The Dow gained 338-points with the Nasdaq and small caps taking charge as it continued to be "risk on" trading environment, and the bull flags that we've been watching were breaking out. Oil was down sharply early on helping out the market, but it did bounce back later in the day. Bonds were up as yields slipped lower.
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The S&P 500 (C-fund) gapped up and blasted through the top of the recent trading range, surprising many of the bears, including myself. Now that many of the bears have capitulated and started to do some buying, is it time for the rally to finally run out of steam? I don't know, but as I mentioned above, new highs wouldn't make sense in a rising rate environment, although in those yield curve inversions charts we did see new highs after each of them before stocks rolled over. "They" want us buying and being as bullish as possible before the rug gets pulled out from under the market again.
DWCPF (small caps / S-fund) finally saw a bull flag do what a bull flag is supposed to do - break to the upside. I guess we shouldn't be surprised, but there was certainly a pattern of breakdowns from these flags this year.
The EFA (I-fund) also took off as the dollar tanked and we got a bull flag breakout. It moved from struggling below the 50-day EMA, right up to the 200-day EMA in a day. Good action, but still some resistance.
BND (Bonds / F-fund) remains in a down trend but they had a strong day as yields slipped of the recent high yesterday.
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
To get weekly or daily notifications when we post new commentary, sign up HERE.
Thanks 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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Having sprung about 500-points off the 2022 lows, the S&P 500 is now only about 150-points off the all time highs. That's incredible given what the market is up against this year. How we can justify new highs when comparing what the Fed has been giving to the market over the last few years, to what it plans to now take away, doesn't make a lot of sense, but if you have been following the stock market for as long as I have you know that things don't always make sense.
Sure, there were stocks that were extremely beaten down and maybe more so than they should have been, and there were some good companies that got thrown out like a baby with the bath water, but a year or two of upcoming Fed interest rate hikes is not the best formula for higher earnings and stock prices, although there can be a case made for new highs. Keep reading.
As far as the potential for an inverted yield curve goes, a 2-year / 10-year Treasury Yield inversion hasn't happened yet, but it looks inevitable, and historically that has preceded a recession almost every time that it has happened over the last several decades. However, leading up to an inversion, and even during the intermediate-term after an inversion, the stock market hasn't done that poorly. It actually did a lot better than you might expect -- for a while.
But when the recession hit months later, the market does tend to take a hit. So perhaps being bearish now, while the yield curve hasn't inverted yet, is being premature? Of course the inversion is not a stand alone problem when we know the Fed's intentions with, not only interest rates, but also the winding down of their balance sheet, which takes easy money out of the financial system.
Here are the last four official recessions in the U.S.
July 1990–Mar 1991
Mar 2001–Nov 2001
Dec 2007–June 2009
Feb 2020–April 2020
Here are some charts of the 2/10 yield curve inverting over the last 30 years. Only the 1998 inversion did not lead to an official recession, although the stock market eventually corrected sharply that year as well. But also, as I mentioned above, stocks did not peak before or when the yield curve inverted, but instead many weeks or months later. So there were corrections and bear markets after inversions, but not before new highs were made each time, so I guess we can't rule that out this time.
As you can see, in all cases stocks moved higher for many weeks or several months, before peaking.
And here is the current 2/10 year yield curve. It's not there yet, but it looks like it is on an imminent collision course with a move below 0.0.
I have been too quick to give up on the bounce off the lows, which tends to happen to me a lot, but at my age I am a little more defensive than some of you probably should be. With the above information I may end up being too defensive for a while now, although I still like to hit and run when the situations present themselves, and buying after a move like we just had is not one of them.
So my take is that this is a great move in what has been a rough year for stocks, but I don't think 2022 is going to be as easy as it was for the bulls after the lows off the early 2020 crash. And the Fed is the difference. But I won't rule out new highs before the next shoe drops.
The next two days could be interesting as it is the end of a negative quarter and money managers will be making some window dressing moves to spruce up their quarterly reports.
We get the March jobs report on Friday and estimates are looking for gain of about 500,000 jobs an an unemployment rate of 3.7%.
Sure, there were stocks that were extremely beaten down and maybe more so than they should have been, and there were some good companies that got thrown out like a baby with the bath water, but a year or two of upcoming Fed interest rate hikes is not the best formula for higher earnings and stock prices, although there can be a case made for new highs. Keep reading.
As far as the potential for an inverted yield curve goes, a 2-year / 10-year Treasury Yield inversion hasn't happened yet, but it looks inevitable, and historically that has preceded a recession almost every time that it has happened over the last several decades. However, leading up to an inversion, and even during the intermediate-term after an inversion, the stock market hasn't done that poorly. It actually did a lot better than you might expect -- for a while.
But when the recession hit months later, the market does tend to take a hit. So perhaps being bearish now, while the yield curve hasn't inverted yet, is being premature? Of course the inversion is not a stand alone problem when we know the Fed's intentions with, not only interest rates, but also the winding down of their balance sheet, which takes easy money out of the financial system.
Here are the last four official recessions in the U.S.
July 1990–Mar 1991
Mar 2001–Nov 2001
Dec 2007–June 2009
Feb 2020–April 2020
Here are some charts of the 2/10 yield curve inverting over the last 30 years. Only the 1998 inversion did not lead to an official recession, although the stock market eventually corrected sharply that year as well. But also, as I mentioned above, stocks did not peak before or when the yield curve inverted, but instead many weeks or months later. So there were corrections and bear markets after inversions, but not before new highs were made each time, so I guess we can't rule that out this time.
As you can see, in all cases stocks moved higher for many weeks or several months, before peaking.
And here is the current 2/10 year yield curve. It's not there yet, but it looks like it is on an imminent collision course with a move below 0.0.
I have been too quick to give up on the bounce off the lows, which tends to happen to me a lot, but at my age I am a little more defensive than some of you probably should be. With the above information I may end up being too defensive for a while now, although I still like to hit and run when the situations present themselves, and buying after a move like we just had is not one of them.
So my take is that this is a great move in what has been a rough year for stocks, but I don't think 2022 is going to be as easy as it was for the bulls after the lows off the early 2020 crash. And the Fed is the difference. But I won't rule out new highs before the next shoe drops.
The next two days could be interesting as it is the end of a negative quarter and money managers will be making some window dressing moves to spruce up their quarterly reports.
We get the March jobs report on Friday and estimates are looking for gain of about 500,000 jobs an an unemployment rate of 3.7%.
The S&P 500 (C-fund) gapped up and blasted through the top of the recent trading range, surprising many of the bears, including myself. Now that many of the bears have capitulated and started to do some buying, is it time for the rally to finally run out of steam? I don't know, but as I mentioned above, new highs wouldn't make sense in a rising rate environment, although in those yield curve inversions charts we did see new highs after each of them before stocks rolled over. "They" want us buying and being as bullish as possible before the rug gets pulled out from under the market again.
DWCPF (small caps / S-fund) finally saw a bull flag do what a bull flag is supposed to do - break to the upside. I guess we shouldn't be surprised, but there was certainly a pattern of breakdowns from these flags this year.
The EFA (I-fund) also took off as the dollar tanked and we got a bull flag breakout. It moved from struggling below the 50-day EMA, right up to the 200-day EMA in a day. Good action, but still some resistance.
BND (Bonds / F-fund) remains in a down trend but they had a strong day as yields slipped of the recent high yesterday.
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
To get weekly or daily notifications when we post new commentary, sign up HERE.
Thanks 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.
