tsptalk's Market Talk

[tsptalk]

Another mixed and mostly flat day for stocks as the bulls continue to defy the negative seasonality of this week. Yields and the dollar are higher adding some pressure to the indices.

Oil is down and trying to stay above $70/ barrel, while natgas has been rallying. There are many diverging signals coming in. JTH pointed out that utilities, one of the defensive sectors, has been leading this year. That's odd for a year where stocks are doing so well. Gold and silver continue to rally with gold at all time highs despite inflation being under control. The Fed cutting rates while the Dow and S&P are basically at all time highs is also odd, although not unheard of.

While things appear to look quite good, assuming the labor market stays firm, I can't help but think we're being set up for something, but given it's an election year I wouldn't expect too many financial surprises before the election, although nothing seems typical anymore.

 

[tsptalk]

More stimulus talk out of China is helping stocks open strongly today. China's Shanghai Index was up another 1% yesterday, following the recent stimulus driven breakout, but it had a nasty negative reversal after testing its 200-day EMA. What this means for our market today, I don't know, but the Shanghai could see more backing and filling in the coming days.

 

[tsptalk]

Don't fight the Fed ... or the data?

We've been obsessing over the weak seasonality recently and while there have been some volatile moments, this pre-election period has been filled with favorable economic data. This morning we got another 3% GDP figure for Q2, so that's strong, and then again better than expected jobless claims (although negative revisions to prior reports again.)

We could see some volatility leading up to the election because of the tight polls and the differing policies that each candidate brings, but if the data is as good as we're hearing, would the Fed probably be racing to lower interest rates so aggressively? It's tough to know who or what to trust.

I think covid taught us that "they" will tell us what to believe and the truth may eke out at another time. And if that is what is happening in the market with the economic data, then we probably shouldn't fight it (enjoy the rallies?) but keep in mind that the narrative could change later - after the election?

That would be the opposite of what we've come to expect where it's usually volatile before an election, and very bullish afterward.

I posted this chart in today's commentary showing that in the prior three elections.

I'm trying not to be political unless it is 100% related to the markets, which is my focus here on all of this. How will / should the market respond to what we're being told and seeing?

 

[tsptalk]

Below are more details on the PCE prices and Income and Spending reports. The initial reaction was slightly positive, but since the opening bell more buyers have been stepping up.

We have yields and the dollar down slightly on the benign inflation data. The Core PCE Price Index was up a little but all in all, this keeps the Fed on track to lower rates, so it's a positive. The question will be whether it was priced in already and perhaps ready for some profit taking as we enter the final stretch before the election.

Highlights
Personal income increased 0.2% month-over-month in August (Briefing.com consensus 0.4%) following a 0.3% increase in July.
Personal spending increased 0.2% (Briefing.com consensus 0.3%) following a 0.5% increase in July.
The PCE Price Index rose 0.1% month-over-month (Briefing.com consensus 0.1%) following a 0.2% increase in July. The core-PCE Price Index, which excludes food and energy, increased 0.1% (Briefing.com consensus 0.2%) following a 0.2% increase in July.
On a year-over-year basis, the PCE Price Index was up 2.2%, versus 2.5% in July, while the core-PCE Price index was up 2.7%, versus 2.6% in July.

Key Factors
The PCE Price Index for Goods was down 0.2% after being flat in July, leaving it down 0.9% year-over-year versus down 0.2% in June. The PCE Price Index for Services was up 0.2%, versus up 0.2% in July, leaving it up 3.7% year-over-year, unchanged from July.
The personal savings rate as a percentage of disposable personal income dipped to 4.8% from 4.9%.
Wages and salaries increased 0.5% month-over-month following a 0.3% increase in July.
Rental income increased 0.7% month-over-month after increasing 0.7% in July.
Personal interest income fell 0.6% month-over-month after sliding 0.6% in July.
Personal dividend income was down 0.4% month-over-month after falling 0.3% in July.
Real disposable income was up 0.1% month-over-month and was up 3.1% year-over-year. Real personal spending was up 0.1% month-over-month and was up 2.9% year-over-year.

Big Picture
The key takeaway from the report is that it shows tame inflation figures that support the Fed's progress in getting inflation back to its 2% target on a sustainable basis.

Source: Briefing.com

 

[tsptalk]

China's stock market continues to soar since the stimulus announcement. Yup, it's gotten that ridiculous. Of course the US has been doing stuff like this for years, but maybe not to this extent, I'm not sure?

The chart was only updated through Friday so I had to add last night's move myself...

Otherwise, US stocks are rather flat this morning, with a negative bias. The Transports are actually jumping 1% and toward its recent highs again. That's a good sign from this market leader.

 

[tsptalk]

New month, new direction. We saw sell off in early August, early September, and now early October.

Will this be another gift for the dip buyers like those prior months?

 

[tsptalk]

An hour into trading, stocks have come back from an early gap down but yields and the dollar are popping higher and that may keep some pressure on.

Oil is up another 3% this morning after the war escalation in Israel, plus we have the concern over the dockworkers' strike, but investors seem to have their eye on Friday's jobs report.

Small caps have moved into positive territory after the S-fund filling the open gap from mid-September and the 20-dy EMA continues t try to hold.

It's a long day and we have seen some rough starts to new months recently, so if investors are seeing that pattern, they may be quick to buy this dip as well.

 

[tsptalk]

Some mixed economic data has stocks slipping this morning, although the indices are again rather flat in front of tomorrow's key jobs report.

We got weaker than expected initial jobless claims but stronger than expected manufacturing data. The strong ISM is actually winning out as it is pushing yields and the dollar higher, which puts pressure on a stock market looking for a little direction.

Overall the picture looks good but being the month before an election, the market is also on edge about the next provocative political headline, not to mention the violence in the Middle East and the dockworker strike.

Small caps are lagging again with those higher yields and the data may be leading the Fed to rethink another 0.50% cut next month - making tomorrow's jobs report that much more important. As I have been saying in the commentary, being the peak political season, I can't imagine they will release a weak jobs report, but a report that is too strong may jeopardize the 0.50% cut.

Estimates are looking for a gain of 120K to 135K jobs. The unemployment rate is expected to remain at 4.2%.

My Goldilocks guess, just based on the entire picture: +140K jobs. A slight bear that isn't over the top.

 

[tsptalk]

The jobs report basically doubled estimates at +254,000 and revised July and August's numbers up by 72,000. The range of expected jobs gains was between +70K and +220K, so the government's number blew past all economists' estimates.

It was the final jobs report before the election so I expected a solid report, but not this high because this really gives the Fed fodder to slow down, or stop cutting rates.

Stocks opened sharply higher on the news, which is a little surprising given the Fed situation, but the bond market is tanking as the 10-year yield jumps toward 4%.

 

[tsptalk]

this really gives the Fed fodder to slow down, or stop cutting rates.

 

[tsptalk]

Not much follow through to Friday's jobs report rally - yet, anyway.

Stocks are lower and bond yields are moving higher as the 10-year gapped up again. This time over 4%.

The 2-year is now back over 4% as well. It's been a pretty big move over the last 2-3 weeks. That's not great for the Fed's cuts, although the Fed is still behind. Just not as much as they were.

The 2/10 yield curve hasn't inverted again yet, but it's getting a little close for comfort after "un-inverting just recently. I can't imaging re-inverting would be a good sign for the economy.

 

[tsptalk]

The CPI report was mixed with the data coming in a little hotter than expected, although the trend remains down for inflation. The Core CPI which excludes food and fuel, was a little higher than expected.

CPI
Actual: 0.2% | B.com Forecast: 0.1% | B.com Cons: 0.1% | Prior: 0.2%

Core CPI
Actual: 0.3% | B.com Forecast: 0.2% | B.com Cons: 0.2% | Prior: 0.3%

Jobless claims came in a little high

Initial Claims
Actual: 258K | Prior: 225K

Continuing Claims
Actual: 1861K | B.com Forecast: NA | B.com Cons: NA | Prior: 1819K | Revised From: 1826K --

Together the two pushed longer-term yields up slightly higher and the 10-year is now trading near some possible resistance. Is this a positive for the F-fund? The F-fund moves counter to bond yields.

The S-fund (DWCPF) was lagging this morning on the higher yields and it appears to be coiling up for something big. We saw similar sideways action in June and July with one breaking up, and the other breaking down, so place your bets!

 

[tsptalk]

In the early trading stocks are mixed with the S&P up, Small caps leading, but the Nasdaq is lower. Fridays have had a positive bias in recent weeks. Weakness in Tesla put the Nasdaq on the negative side to start the day.

The PPI data came in a little cool with the Core about where it was expected. Not much of a reaction from the bond market as the 10-year yield is flat right now.

JPM's Jamie Dimon says he is worried about the economy despite signs of the Fed's soft landing, because of geopolitical risks.

Earnings season could have some push me, pull me stock market reactions in the coming weeks until the Election and the Fed meeting n November 7.

PPI
Actual: 0.0% | B.com Forecast: 0.1% | B.com Cons: 0.1% | Prior: 0.2%

Core PPI
Actual: 0.2% | B.com Forecast: 0.2% | B.com Cons: 0.2% | Prior: 0.3%

 

[tsptalk]

The Bond Market is closed today and the stock market is mixed with large caps doing well, and small caps lagging (Russell 2000 is down, but S-fund index is up modestly.)

BND, the bond fund ETF that the F-fund tracks, is down despite the bond market being closed so it sounds like yields are trading up somewhere - futures or just in the ETFs, not sure.

Anyway, I'm trying to take the day off but keeping an eye on things.

The TSP is also closed, so there will be no share price updates tonight.

 

[tsptalk]

After a positive open, stocks have turned negative this morning, although the S&P and Nasdaq are on the flat side, and small caps are up as yields (and oil) drop sharply after Israel said they will not bomb Iranian oil fields.

The recent bullish breakout could be triggering some algorithm buying but seasonality turns more negative next week so we could also see some profit taking.

Earnings are coming out more heavily this week as Banks report but we still have a couple of week before the market moving big tech batch of earnings.

The reversal in yields after the 10-year hit its 200-day average make the F-fund intriguing. The F-fund moves counter to yields.

 

[tsptalk]

Stocks are mostly higher this morning with some weakness in tech stocks. Small caps are up big but the leader this morning is the Dow Transportation index.

This market leader is up over 2% and trading at multi-year highs after dancing around that breakout area for months. Is this another fake out near resistance, or it is finally ready to move above the 2021 highs?

Yields are down again as the 10-year Treasury yield starts a journey to potentially fill the open gaps below, which would help the F-fund if it succeeds.

 

[tsptalk]

More good economic data, plus a great earnings report from Taiwan Semiconductor, and other chip manufacturers, had stocks gapping up at the open this morning.

The indices came off their opening highs but that only served to fill the gaps, and they've firmed up since. Small caps are lagging after yesterday's big gain.

Yields are popping higher on the strong data and the better than expected data move the chances of a 0.25% rate cut next month down slightly, but it's still at a 90% chance.

Next week is an historically poor month for stocks but as I mentioned in September, and many times since, don't expect to see any bad economic data until after the election.

 

[tsptalk]

Another quiet day with stocks remaining buoyant but some downside pressure keeping them from breaking our above some stubborn resistance.

Oil fell back below $70 a barrel this morning but the most exciting market right now is gold, which has been on a tear.

I'm not sure what to make of this as it is usually a safe haven or a hedge against inflation, neither of which appear to be needed right now, so something must be going on.

Next week has some issues on the seasonality calendar so be careful, but that hasn't stopped the bulls from running wild during the rough months of August thru October so far.

 

[Khotso]

Another quiet day with stocks remaining buoyant but some downside pressure keeping them from breaking our above some stubborn resistance.

Oil fell back below $70 a barrel this morning but the most exciting market right now is gold, which has been on a tear.

I'm not sure what to make of this as it is usually a safe haven or a hedge against inflation, neither of which appear to be needed right now, so something must be going on.

Next week has some issues on the seasonality calendar so be careful, but that hasn't stopped the bulls from running wild during the rough months of August thru October so far.

Would have been good to buy gold 2 years ago ... too late now methinks

 

[tsptalk]

Would have been good to buy gold 2 years ago ... too late now methinks

The current bitcoin chart looks a lot like the gold chart did near the middle of July, and the start of March. But it could always go back down to the bottom of the flag again first, so be careful.

Bull flags tend to work.