Three months down, two months up, now January starts the New Year on the downside. We did see a little buying on Friday but the indices closed off their highs in a choppy day of trading following a decent, but mixed message jobs report. We'll discuss that below. The Dow gained 26-points on the day and the gains were very modest in most of the indices, but the bulls were just happy to see green after the rough start to the year. Bonds were down as yields moved up on the jobs report beat.
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Interest rates, interest rates, interest rates. Let's see... what is the market concerned about? I heard it somewhere and it's on the tip of my tongue, but it's not coming to me yet.
Is it the wars going on? The price of oil and gasoline? Is it the $34 trillion national debt and the annual interest on that debt is now exceeding some of the largest expenditures of our country?
Source: zerohedge.com
Those are certainly taken into consideration, but right now it's all about what the Federal Reserve is doing, or plans to do with the Fed Funds interest rate.
When the Fed was raising interest rates last year, the stocks market was falling. Once the market anticipated a pause in interest rate hikes, and perhaps prematurely priced in 2024 rate cuts, the market took off, and it did so for two months.
Now we head into 2024 with the realization that investors may have jumped the gun on lower rates and perhaps need to readjust a little. Not that stocks have to tank, but the indices had moves up rather dramatically in a small amount of time, and now some backing and filling was taking place last week.
It doesn't have to mean that the bull market is over, but things may have gotten ahead of themselves and the market needed to shake out some of the over confidence, overly bullish sentiment, and overbought conditions. Whether that took a week, or maybe longer remains to be seen, but its' too early to say that we saw a top in late December. What we can say is that we saw a typical double top pullback off the 2021 highs near 4800.
The jobs report came out on Friday and that had the market bouncing around quite a bit while investors deciphered what it meant. The data was stronger than expected with 216,000 jobs being created - well above the 175,000 that was estimated. But there's a catch. These positive reports make for nice headlines and give the stock market a reason to rally, but did you know that 10 of the past 11 jobs reports have been revised substantially lower in the next reports?
Even in Friday's report they revised the October report down 45K from 150K to 105K, and the November report was revised down 26K from 199K to 173K. That's 71,000 fewer jobs than reported, and Friday's December report beat estimates by 41,000 so the net was 30,000 fewer jobs than the market had priced in. So, is there any reason to believe that Friday's 216,000 figure won't be revised down in the reports over the next month or two?
Interestingly enough, the Fed wants a weaker jobs report so they can feel more comfortable about cutting interest rates, so inventors' reaction may have been a little confused with the higher headline number, but revisions lowered in prior months. I'd say that's why stocks went up, because the net was fewer jobs then expected, but yields went up meaning the bond market saw this as strong data.
Yes, the bond market saw higher yields on Friday and the 10-year yield moved above some descending resistance topping 4% again, but the 200-day average is now in the way and it could be a make or break area for the yield. The stock market prefers lower yields so the better than expected jobs report (on the surface) pushed it above that 4% level, but as we said, lowered revisions may have made that move up in yields on Friday a fake out.
The dollar was all over the place on Friday. It's up against some tough resistance but it managed to close flat and near the highs of the day after a positive reversal day. That large gap below was touched but not filled.
The S&P 500 spent a couple days below the 20-day EMA but it closed above it on Friday after last week's pullback. That large candlestick from December 13th, the last FOMC meeting, could be the next pullback target if the 20-day EMA can't hold this week.
Some of the broader, more economically sensitive and market leading indices pulled back with the rest of the market last week. We saw some support taken out on the Dow Transports and the Russell 2000 small caps' charts, but as we've talked about the angles of incline probably weren't very sustainable and a little pause in the rally was due. Now it's a matter of how much pullback is enough as the bulls certainly don't want to see the major moving averages get taken out. In a bull market, there tends to be a lot of buy orders near the 50-day EMAs.
This week's economic highlights will be the CPI report on Thursday, and the PPI reports on Friday, so we have a few days before these shake things up.
Admin note: We are celebrating our 20th anniversary this month and we're offering a discount on our annual subscriptions this week to new and current subscribers. You can sign up to a new service or add a year or two (in some cases) to your current subscription for 20% off the regular price (or 50% in some cases.) Use this link for more information:
TSP Talk - Annual Subscription Sale
The S&P 500 (C-fund) is trying to stabilize near the 20-day after the 4-day pullback. The PMO indicator crossed below its moving average last week, and that's a bearish sign, but also the initial crossover tends to trigger a short term oversold bounce, which doesn't sound right after a two month rally and a 4-day pullback. There are several potential downside targets noted in the chart, should the 20-day EMA break down this week. This is a mixed bag and as I mentioned above, it may all depend on the sentiment toward interest rates and what the public thinks is coming next - another hike, a pause, or maybe some eventual cuts.
DWCPF (S-fund) filled a large open gap during the pullback last week and this fund, which was on fire in the last part of 2023, is already down 3.5% for this month. That may be enough, but the precipitous decline off the highs is concerning and that is the change in sentiment over interest rates as the market may have priced in too many cuts and this is the adjustment. 1825 - 1850 looks like a potential target area if this 1875 area can't hold. I wouldn't be surprised to see a relief rally move up to fill those small red open gaps, but that could be a trap rally.
EFA (I-fund) broke some support last week, opened some small gaps but filled one already. The 20-day EMA is key support and it may all depend on whether the dollar (UUP) holds at that resistance line or not.
BND (bonds / F-fund) has pulled back with stocks and that was needed, but there's not a whole lot of support below at this point. I think the 72.0 area is key as it might retrace that large candlestick from December 13. I didn't like the way this closed last week but that could have been jobs report related. The key here is, if you think interest rates and yields are going to decline, the F-fund would do well.
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: 338, align: center"] Daily TSP Funds Return
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[/TR]
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Interest rates, interest rates, interest rates. Let's see... what is the market concerned about? I heard it somewhere and it's on the tip of my tongue, but it's not coming to me yet.
Is it the wars going on? The price of oil and gasoline? Is it the $34 trillion national debt and the annual interest on that debt is now exceeding some of the largest expenditures of our country?
Source: zerohedge.com
Those are certainly taken into consideration, but right now it's all about what the Federal Reserve is doing, or plans to do with the Fed Funds interest rate.
When the Fed was raising interest rates last year, the stocks market was falling. Once the market anticipated a pause in interest rate hikes, and perhaps prematurely priced in 2024 rate cuts, the market took off, and it did so for two months.
Now we head into 2024 with the realization that investors may have jumped the gun on lower rates and perhaps need to readjust a little. Not that stocks have to tank, but the indices had moves up rather dramatically in a small amount of time, and now some backing and filling was taking place last week.
It doesn't have to mean that the bull market is over, but things may have gotten ahead of themselves and the market needed to shake out some of the over confidence, overly bullish sentiment, and overbought conditions. Whether that took a week, or maybe longer remains to be seen, but its' too early to say that we saw a top in late December. What we can say is that we saw a typical double top pullback off the 2021 highs near 4800.
The jobs report came out on Friday and that had the market bouncing around quite a bit while investors deciphered what it meant. The data was stronger than expected with 216,000 jobs being created - well above the 175,000 that was estimated. But there's a catch. These positive reports make for nice headlines and give the stock market a reason to rally, but did you know that 10 of the past 11 jobs reports have been revised substantially lower in the next reports?
Even in Friday's report they revised the October report down 45K from 150K to 105K, and the November report was revised down 26K from 199K to 173K. That's 71,000 fewer jobs than reported, and Friday's December report beat estimates by 41,000 so the net was 30,000 fewer jobs than the market had priced in. So, is there any reason to believe that Friday's 216,000 figure won't be revised down in the reports over the next month or two?
Interestingly enough, the Fed wants a weaker jobs report so they can feel more comfortable about cutting interest rates, so inventors' reaction may have been a little confused with the higher headline number, but revisions lowered in prior months. I'd say that's why stocks went up, because the net was fewer jobs then expected, but yields went up meaning the bond market saw this as strong data.
Yes, the bond market saw higher yields on Friday and the 10-year yield moved above some descending resistance topping 4% again, but the 200-day average is now in the way and it could be a make or break area for the yield. The stock market prefers lower yields so the better than expected jobs report (on the surface) pushed it above that 4% level, but as we said, lowered revisions may have made that move up in yields on Friday a fake out.
The dollar was all over the place on Friday. It's up against some tough resistance but it managed to close flat and near the highs of the day after a positive reversal day. That large gap below was touched but not filled.
The S&P 500 spent a couple days below the 20-day EMA but it closed above it on Friday after last week's pullback. That large candlestick from December 13th, the last FOMC meeting, could be the next pullback target if the 20-day EMA can't hold this week.
Some of the broader, more economically sensitive and market leading indices pulled back with the rest of the market last week. We saw some support taken out on the Dow Transports and the Russell 2000 small caps' charts, but as we've talked about the angles of incline probably weren't very sustainable and a little pause in the rally was due. Now it's a matter of how much pullback is enough as the bulls certainly don't want to see the major moving averages get taken out. In a bull market, there tends to be a lot of buy orders near the 50-day EMAs.
This week's economic highlights will be the CPI report on Thursday, and the PPI reports on Friday, so we have a few days before these shake things up.
Admin note: We are celebrating our 20th anniversary this month and we're offering a discount on our annual subscriptions this week to new and current subscribers. You can sign up to a new service or add a year or two (in some cases) to your current subscription for 20% off the regular price (or 50% in some cases.) Use this link for more information:
TSP Talk - Annual Subscription Sale
The S&P 500 (C-fund) is trying to stabilize near the 20-day after the 4-day pullback. The PMO indicator crossed below its moving average last week, and that's a bearish sign, but also the initial crossover tends to trigger a short term oversold bounce, which doesn't sound right after a two month rally and a 4-day pullback. There are several potential downside targets noted in the chart, should the 20-day EMA break down this week. This is a mixed bag and as I mentioned above, it may all depend on the sentiment toward interest rates and what the public thinks is coming next - another hike, a pause, or maybe some eventual cuts.
DWCPF (S-fund) filled a large open gap during the pullback last week and this fund, which was on fire in the last part of 2023, is already down 3.5% for this month. That may be enough, but the precipitous decline off the highs is concerning and that is the change in sentiment over interest rates as the market may have priced in too many cuts and this is the adjustment. 1825 - 1850 looks like a potential target area if this 1875 area can't hold. I wouldn't be surprised to see a relief rally move up to fill those small red open gaps, but that could be a trap rally.
EFA (I-fund) broke some support last week, opened some small gaps but filled one already. The 20-day EMA is key support and it may all depend on whether the dollar (UUP) holds at that resistance line or not.
BND (bonds / F-fund) has pulled back with stocks and that was needed, but there's not a whole lot of support below at this point. I think the 72.0 area is key as it might retrace that large candlestick from December 13. I didn't like the way this closed last week but that could have been jobs report related. The key here is, if you think interest rates and yields are going to decline, the F-fund would do well.
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.
