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Economics Market Update Stock Market

Stock Market Week in Review (12/4/22) – Powell Rally

This weekly market recap is brought to you by Koyfin, a powerful analytical tool that I am proud to partner with. Their platform is entirely customizable for whatever data you want to look at including stocks, ETFs, mutual funds, currencies, economic data releases (one of my personal favorites used often for these posts), crypto, and even transcripts of company events! Click the link above to get a special offer only for Dividend Dollar readers or go give my product review a read if you’re interested!

Weekly Review

The market seemed to be in a turkey coma as there wasn’t much action in the first half of the week. The market was choppy while waiting for Fed Chair Powell’s speech on Wednesday and the key economic data to follow.

The market liked what it heard in Mr. Powell’s speech and things took off in a big way on Wednesday off of his hints that the Fed may slow the pace of rate hikes.

Some will argue that he actually loosened the screws a bit. I would argue he didn’t even bring his toolbox. The market, which was waiting for a to be hit like a nail by a hammer, was relieved when he did not.

This became a rally catalyst that caused some short-covering and some chasing action as the S&P 500 broke above key resistance at its 200-day moving average.

Powell’s actual speech repeated just about everything he said following the November FOMC meeting. Some added attention was paid to his summation that “the ultimate level of interest rates will be somewhat higher than previously expected” versus the original contention that “the ultimate level of interest rates will be higher than previously expected.”

Mr. Powell’s talk (and tone) presumably weakened the fear of another 75-basis point rate hike. Granted the fed funds rate is still going higher from current levels, but market participants can smell a peak in the policy rate around 5.00% in the first half of next year. If the FOMC elects to raise the target range by 50 basis points at the December meeting, the target range will be 4.25-4.50%.

On Thursday, market participants received the October Personal Income and Spending Report, which favored the “smaller” rate hike at the same time it favored a soft landing possibility.

Personal income increased 0.7% month-over-month in October and personal spending jumped 0.8%. The PCE Price Index was up 0.3% month-over-month and the core-PCE Price Index, which excludes food and energy, increased 0.2%.

On a year-over-year basis, the PCE Price Index was up 6.0%, versus 6.3% in September, and the core-PCE Price Index was up 5.0%, versus 5.2% in September.

The big rally effort slowed as market participants contended with the notion that the upside moves might have been an overreaction and that the growth environment is going to be challenging given the past rate hikes and the rate hikes that are yet to come.

A 49.0% reading for the November ISM Manufacturing Index, which is the first sub-50% reading (the dividing line between expansion and contraction) since May 2020, hurt some of the rebound enthusiasm.

The November employment report on Friday also tested the rally. Nonfarm payroll growth was higher than expected, the unemployment rate held near a 50-year low of 3.7%, and average hourly earnings increased at a robust 0.6% month-over-month, leaving them up 5.1% year-over-year.

The report itself was good news from an economic standpoint, yet the market saw it as bad news as it gives more room for the Fed to slow the economy with rate hikes. The report signals higher for longer with respect to the target range for the fed funds rate.

The initial retreat following the employment report saw the S&P 500 breach its 200-day moving average, but by Friday’s close the index reclaimed a position above that level. All in all, this week was a win for the bulls given that the market showed nice resilience to selling efforts and the S&P 500 held the line at that key technical level, next is the downward trend line 👀

8 of the 11 S&P 500 sectors closed with a gain on the week. Communication services and consumer discretionary enjoyed the biggest gains. Energy, utilities, and financials were the lone sectors in the red by the end of the week.

In the Treasury market, there were big down swings predicated on the thinking that maybe the Fed won’t have to raise rates as high as feared. The continued inversion along the yield curve reflects the festering concerns about the Fed raising rates into a weakening economy and inviting a recession. The 2-yr note yield fell 19 basis points to 4.29% and the 10-yr note yield fell 18 basis points to 3.51%.

Dividend Dollars’ Opinion

That’s it for the recap. Now for my opinion!

As I stated last week, we just barely broke above the 200-day EMA. We opened this week below it and would have finished there if the market hadn’t rallied so hard off of Powell’s speech. I even called that we could gap fill to the 4,080 area, and we did!

I’m not trying to make a habit out of predicting things, just simply share with you what I’m noticing. And I’m noticing that an end of year rally could push us slightly higher to the mother of all trendline’s. The red line in my chart below has been rejected every time since ATHs.

We could very easily stay fighting for that trend line through the end of the year before a significant breakout happens. But when it does happen, the direction is anybody’s guess. My money is on down.

Here’s why: what did Powell say on Wednesday that warranted a 3% surge on the S&P? Signals of slowing rate hikes are nice… but the probability of a 50-point rate hike in December has not changed. The CME Fedwatch tool showed a 75% probability of a 50-point hike last week. The probabilities for a smaller hike in the February meeting were fairly unchanged as well.

People all over are anticipating a “Fed Pivot”. But the Fed is far from pivoting. A Fed Pivot happens when the Fed reverses their monetary policy stance and occurs when the underlying economy has changed to such a degree that the Fed can no longer maintain its policy.

What on Wednesday suggested that this was the case? We are still a ways away from the peak rate and even then we will be at that rate for sometime before a rate cut is imminent. So why did the market bounce as it did following the speech?

The main reason is that expectations were low. We expected him to stay hawkish, instead we got optimistic. To me, playing the expectations game is silly. Rates are rising, and they will be staying there for a while. This will eat at companies’ earnings and sooner or later will be reflected in stock prices.

Be ready for deals, the technical indicators say a dip is coming. Worse yet, a recession is still not out of the picture.

I think that inflation is still a larger problem than the market anticipates. We have seen the market move higher on “better-than-expected” inflation readings where inflation is still over 7% and CPI has yet to peak.

The Fed may lessen the size of the rate hikes, but we are a long way away from ever having rates decreased. Till then, the market is at risk of entering a very serious recession.

The Fed is trying to engineer a soft-landing and so far they have done a great job of it.

However, the longer rates stay high, the closer we may get to seeing the Fed’s planned economic slow down go too far. GDP, employment, real incomes, etc. These things will start to waiver, earnings will start to miss, and the market will start to look quite overbought at these levels which will kick off some serious selling and capitulation.

Because of this, I am short with a position in $SDS and $SPXS and am holding more cash than normal. The short is only 2% of my portfolio and the cash is 10%. I’ll be adding to this short and cash position through to the end of the year if we remain trending up, but I think we are getting closer to a flip

I constantly make moves in my portfolio according to this thesis. You can read about these moves in my weekly portfolio update here.

And if you like updates like this, follow my Twitter or my CommonStock page where I post updates on the economic data throughout the week.

Regards,

Dividend Dollars

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Economics Market Recap

Stock Market Week in Review (11/25/22) – Thanksgiving & FOMC

This weekly market recap is brought to you by Koyfin, a powerful analytical tool that I am proud to partner with. Their platform is entirely customizable for whatever data you want to look at including stocks, ETFs, mutual funds, currencies, economic data releases (one of my personal favorites used often for these posts), crypto, and even transcripts of company events! Click the link above to get a special offer only for Dividend Dollar readers or go give my product review a read if you’re interested!

Weekly Review

Despite the low volume from this holiday week, the markets were still able to extend their green streak. Thanksgiving week has averaged 0.6% returns since 1945, so this was not uncommon.

Chart, bar chart

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The seasonality helped to offset the market’s ongoing growth concerns which may prove to be exacerbated going forward with China re-engaging in COVID-related measures.

China confirmed their first COVID-related death in six months. New lockdown measures have been reported in Beijing.

Ignoring seasonality, the upside this week was encouraged by better-than-expected earnings from retailers like Best Buy ($BBY), and Abercrombie ($ANF) as well as some tech names like Dell ($DELL) and Analog Devices ($ADI). Deere ($DE) the farm equipment company also was among the more notable earning reports this week.

Disney ($DIS) was also a winner this week off of the news that CEO Bob Chapek stepped down with former CEO Bob Iger reclaiming the roll for two years.

Like earnings, some economic reports were better than expected this week. The October Durable Goods Orders, October Home Sales, and the November University of Michigan Index of Consumer Sentiment read well. On the other hand, Weekly Initial Claims and Preliminary November IHS Markit Manufacturing and Services PMIs were worse than expected.

The FOMC minutes for the November 1-2 meeting was revealed on Wednesday. The report showed that “a substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate.” This supports the market’s notion that the Fed is likely to raise rates by 50 basis points in December rather than a 75-point hike. Before the minutes were released, the CME Fedwatch Tool showed an 80% chance that the next hike is for 50 basis points.

All 11 sectors of the S&P closed with a gain this week. Materials and Utilities making the largest gains while energy showed the thinnest gain.

Dividend Dollars’ Opinion

That’s it for the recap. Now for my opinion!

As I stated last week, due to positive seasonality the S&P could push above the 200-day EMA. I also stated that volume would be low, so if it pushed higher, it would be slow. And that’s exactly what happened this week.

Chart, line chart, histogram

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We barely broke above and held the 200-day EMA this week, and that was with low volume. That makes me think there’s not much strength behind it.

However, this seasonality could continue through the end of the year. I wouldn’t be surprised if we see a gap fill to the $4,080 area or even test the trend line drawn down from the ATH in January.

But after that, it could be anybody’s guess.

Over the medium term, I am bearish. I think that inflation is still a larger problem than the market anticipates. We have seen the market move higher on “better-than-expected” inflation readings where inflation is still over 7% and CPI has yet to peak.

The Fed may lessen the size of the rate hikes, but we are a long way away from ever having rates decreased. Till then, the market is at risk of entering a very serious recession.

The Fed is trying to engineer a soft-landing and so farthey have done a great job of it.

However, the longer rates stay high, the closer we may get to seeing the Fed’s planned economic slow down go too far. GDP, employment, real incomes, etc. These things will start to waiver, earnings will start to miss, and the market will start to look quite overbought at these levels which will kick off some serious selling and capitulation.

Recession indicators such as GDP forecasts, yield curve inversion, falling PMI, and tightening lending standards suggest it is more likely to go that route rather than the preferred soft-landing.

Because of this, I am short with positions in $SDS and $SPXS and am holding more cash than normal. The short is only 1.3% of my portfolio and the cash is 7.1%. I’ll be adding to this short and cash position through to the end of the year if we remain trending up.

I will be writing a portfolio update later this weekend, so stay tuned for that in order to read more about my positions and plans.

And if you like updates like this, follow my Twitter or my CommonStock page where I post updates on the economic data throughout the week.

Regards,

Dividend Dollars

Categories
Economics

Stock Market Week in Review (11/18/22) – Fed Talks and Retail News

This weekly market recap is brought to you by Koyfin, a powerful analytical tool that I am proud to partner with. Their platform is entirely customizable for whatever data you want to look at including stocks, ETFs, mutual funds, currencies, economic data releases (one of my personal favorites used often for these posts), crypto, and even transcripts of company events! Click the link above to get a special offer only for Dividend Dollar readers or go give my product review a read if you’re interested!

Weekly Review

The market had a slight pullback this week following the recent big run. Trading reflected some consolidation efforts and growth concerns in a slowing economic environment.

The Fed has been in the middle of those growth concerns. Fed officials have reiterated that they are not done yet raising rates. Comments from St. Louis Fed President Bullard were the most impactful for market participants this week. He acknowledged that the fed funds rate is not yet at a sufficiently restrictive level and then showed in a Taylor Rule exercise that it may need to go to 5-7% in the battle to get inflation under control.

Other remarks from Fed (FOMC voters) officials included:

Fed Governor Christopher Waller said “we’ve still got a ways to go” before stopping interest rate hikes. Later in the week he said, that he’s more comfortable stepping down to a 50-basis point hike at the December FOMC meeting following the economic data releases from the last few weeks.

Fed Vice Chair Brainard said it may ‘soon’ be appropriate to slow the pace of rate hikes.

Kansas City Fed President George for her part said a real slowing in labor markets and a contraction in the economy may be needed to reduce inflation.

Boston Fed President Collins said in a CNBC interview that a 75 basis point rate hike is still on the table.

The continued inversion in the yield curve this week shows worries about the Fed over tightening. The 2-yr Treasury note yield rose 19 basis points this week to 4.50% while the 10-yr note yield fell one basis points to 3.82%.

We received some data this week that played into the concerns of a deteriorating economic outlook. The October Producer Price Index showed some welcome disinflation at the producer level with total PPI up 8.0% yr/yr, versus 8.4% in September, and core PPI, which excludes food and energy, up 6.7% yr/yr, versus 7.1% in September.

There was also the Retail Sales Report for October which showed a 1.3% increase after a flat reading from last month. Despite the stronger-than-expected retail sales data, there is are worries that discretionary spending activity may slow in coming months as more spenders feel the pinch of rising interest rates, stubbornly high inflation, a reduced wealth effect, and increased layoff announcements and concerns about job security.

Retailers Target ($TGT) and Walmart ($WMT) acknowledged that consumers were pulling back on discretionary purchases after reporting earnings this week. Walmart reported good results for its fiscal third quarter, but CEO John David Rainey noted that consumers were “making frequent trade-offs and biasing spending toward everyday essentials.”

In general, there was a positive response to earnings reports from retailers this week. Lowe’s ($LOW), Macy’s ($M), Bath & Body Works ($BBWI), Ross Stores ($ROST), Foot Locker ($FL), Gap ($GPS), and Dow component Home Depot ($HD) all traded up after reporting their respective quarterly results.

For the tech sector, Cisco ($CSCO), Applied Materials ($AMAT), and Palo Alto Networks ($PANW) also enjoyed some gains after their earnings reports.

On the flipside, William-Sonoma ($WSM) and Advance Auto ($AAP) both fell after disappointing with their earnings reports.

An added point of concern that market participants dealt with this week is that earnings estimates for 2023 are too high and will be subject to downward revisions. Investors took some money off the table this week and are mindful about how much they are willing to pay for every dollar of earnings.

To be fair, some contrarian buying interest was stoked by BofA Global Fund Manager Survey early in the week that showed an elevated cash position of 6.2%.

There was a knee-jerk response to a halting report earlier this week that a Russian bomb had killed two people in NATO state Poland. This development raised the market’s anxiety level about the geopolitical situation and potential for a wider conflict in Russia’s war with Ukraine. However, follow-up intelligence reports suggested the missiles were not fired by Russia and there wasn’t any deliberate action here. That finding helped mitigate the angst surrounding the initial report.

Also, the cryptocurrency market continues to be in focus as more news emerges about the FTX meltdown.

Only three S&P 500 sectors squeezed out a gain this week, utilities (+0.8%), health care (+1.0%), and consumer staples (+1.7%). On the flip side, energy (-2.4%) and consumer discretionary (-3.2%) were the biggest losers.

Dividend Dollars’ Opinion

That’s it for the recap. Last week was the first week I decided to add my take, and I really enjoyed it! I think I will make this a regular part of the update going forward.

For my opinion, I still feel conviction in my belief that the market is due for a leg down. As discussed last week, my reasons for this thought are:

1. I believe the rally last week following the CPI report was unfounded and that the true inflation reading was misunderstood. Inflation has not yet peaked.

2. A Fed pivot is still a long way away, and Fed talk from this week confirmed that.

3. This is a new reason; Fed talk this week alluded to higher chances of a recession occurring. The soft-landing they’ve been aiming for is becoming more and more difficult to achieve. Leading recession indicators in the chart below are in deep recession territory. These have not provided a false signal in over 50 years.

4. In addition, $SPX was not able to recover the 200-day EMA, which is where prior rallies had failed.

There’s a chance that next week, with holiday seasonality, $SPX can push above the 200 EMA. However, thanksgiving week generally is slow push higher with not much volume. I doubt it will have much strength if any to push above the EMA and stay there.

So far, my short position is down by about 30%. Ouch! Good news is that it’s not a significant portion of my account. I still have lots of cash on hand to invest if a dive comes. When starting this short, I definitely didn’t think hard enough about the IV, the expiration of my put, or waiting for a clear 200 EMA rejection. My premium has been shot a bit but we will see how it plays out. In the meantime, I also added a new small position in $SDS for an easier to manage short position.  You can read about these moves in my weekly portfolio update here.

And if you like updates like this, follow my Twitter or my CommonStock page where I post updates on the economic data throughout the week.

Regards,

Dividend Dollars

Categories
Economics Stock Market

Stock Market Week in Review – 11/4/22

This weekly market recap is brought to you by Koyfin, a powerful analytical tool that I proud to partner with. Their platform is entirely customizable for whatever data you want to look at including stocks, ETFs, mutual funds, currencies, economic data releases (one of my personal favorites used often for these posts), crypto, and even transcripts of company events! Click the link above to get a special offer only for Dividend Dollar readers!

Weekly Review

Congratulations on making it through October! The month came to an end on Monday and the Dow Jones Industrial Average logged its best monthly performance since 1976 with a gain of 14.0% after two down months.

The major averages clung to a narrow trading range in the first half of the week as market participants were waiting on the FOMC policy decision on Wednesday and Fed Chair Powell’s press conference.

The big run in October pushed on the idea that Fed might soften its approach after the November meeting. The following line in the policy directive from Wednesday added fuel to that notion:

“In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”

AKA Fed is apt to raise rates higher than expected for longer than expected. Fed Chair Powell said at his press conference, “When (people) hear lags, they think about a pause. It’s very premature in my view to be thinking about or talking about pausing our rate hike. We have a way to go. We need ongoing rate hikes to get to that level of restrictive. We don’t know where that exactly is.”

Mr. Powell was also commented on how resilient the labor market has been, noting that the unemployment rate is still sitting near a 50-year low and that wage inflation, while flattening out, is still well above the level that would be consistent over time with 2.0% inflation.

The October Employment Report reflected a labor market that isn’t showing enough weakness yet to convince the Fed that it can stop raising the target range for the fed funds rate. That point notwithstanding, the October employment situation was more consistent with achieving a soft landing for the economy than a hard landing.

As we covered in my regular economic updates on my Twitter account, the ISM Manufacturing Index for October showed a moderation in manufacturing activity that borders on contractionary territory. Movement like this hasn’t been seen since the pandemic-led contractions in April and May 2020. The ISM Non-Manufacturing Index for October showed that business activity for the non-manufacturing sector, which comprises the largest swath of U.S. economic activity, softened in October at the same time price pressures remained elevated.

Treasury yields were on the rise in anticipation of Wednesday’s FOMC decision, but yields really moved up after that. The 2-yr Treasury note yield rose 25 basis points this week to 4.67%. The 10-yr note yield rose 15 basis points this week to 4.16%.

Other central banks made headlines this week aside from the Fed. European Central Bank (ECB) President Lagarde said that recession risk in the eurozone has increased, and that inflation is too high. ECB policymaker Nagel said that the ECB has a long way to go on rate hikes and that the central bank should begin reducing its bond portfolio at the start of 2023. The Reserve Bank of Australia raised its cash rate by 25 bps to 2.85%, as expected. The Norges Bank raised its key rate by 25 bps to 2.50% and the Bank of England raised its key rate by 75 basis points to 3.00%.

Market participants received earnings reports from over one third of the companies in the S&P 500 this week. Per usual, there were some big winners and big losers, yet macro factors tended to overshadow the individual earnings reports.

Growth stocks struggled this week, which were afflicted by rising interest rates, weak guidance in a number of cases, and the shift out of the mega-cap darlings. The Vanguard Mega Cap Growth ETF ($MGK) fell 6.8% this week. Apple ($AAPL) and Amazon.com ($AMZN) were among the losing standouts for the group, continuing the “techining” that started off last week.

Meanwhile, Chinese stocks were a pocket of strength this week as speculation circulated that China will ultimately relax its zero-COVID policy. JD.com ($JD) and Alibaba ($BABA) were among the biggest winners for Chinese stocks.

Energy stocks were another pocket of strength in the market. The S&P 500 energy sector closed with the biggest weekly gain, up 2.4%, as WTI crude oil futures rose 5.4% to $92.60/bbl. Only two other sectors out of the 11 total were able to squeeze out a gain on the week. Industrials rose 0.4% and materials rose 0.9%.

The dollar had a whipsaw week. The U.S. Dollar Index was inching higher all week until taking a sharp turn lower Friday as other major currencies registered big gains against the greenback (EUR/USD +2.1% to 0.9960). The U.S. Dollar Index closed the week unchanged.

That’s it for this busy busy week! Hope it all went well for you. I know it went well for me, I took some time early in the week to trim some positions and build up some cash (as mentioned in last week’s portfolio update). I have been bearish for a long time given the lagging economic indicators that still haven’t given a great picture on the progress of inflation, thus the Fed keeps trucking along! I think this week is just the beginning of a solid downtrend that could occur through the end of the year. With another rate hike expected in December and tax-loss harvesting season beginning, I think there is a good chance we end this year lower than where we currently are.

Because of this opinion, I sold some positions, took some gains, and grew my cash position to about 7% of my whole portfolio. I’ll be looking to deploy this cash closer to the end of the year. You can read about these moves in my weekly portfolio update here.

And if you like updates like this, follow my Twitter or my CommonStock page where I post updates on the economic data throughout the week.

Regards,

Dividend Dollars

Categories
Earnings Economics

Stock Market Week in Review – 10/28/22

This weekly market recap is brought to you by Koyfin, a powerful analytical tool that I proud to partner with. Their platform is entirely customizable for whatever data you want to look at including stocks, ETS, mutual funds, currencies, economic data releases (one of my personal favorites used often for these posts), crypto, and even transcripts of company events! Click the link above to get a special offer only for Dividend Dollar readers!

Weekly Review

Generally speaking, we just had another strong week for the stock market. Mega cap stocks, which have been regarded as strong for a long time, fell off hard as earnings news rolled in this week. Apple ($AAPL) was a rare exception among the tech giants, trading up after reporting quarterly results. Meta Platforms ($META), Alphabet ($GOOG), Microsoft ($MSFT), and Amazon ($AMZN) and other big tech firms all suffered large losses following their earnings report.

The struggling mega caps didn’t weigh down the broader market as you may have guessed. A pack of blue chip companies provided a welcome distraction with good earnings news and guidance. Honeywell ($HON) and Caterpillar ($CAT) were two of the biggest boosts of the mega cap stocks and led the S&P 500 industrial sector to close with the biggest weekly gain, up 6.7%. Other top performing sectors this week included utilities (+6.5%), financials (+6.2%), and real estate (+6.2%).

Meanwhile, the losses incurred by Meta Platforms and Alphabet drove the communication services sector to close down 2.9% on the week. It was the only sector to end the week with a loss, which feels like a very rare occurrence considering recent history! Another top laggard was the consumer discretionary sector (+0.7%). The remaining six sectors all closed with gains of at least 2.8%.

Small cap stocks were a specific pocket of strength this week. The Russell 2000 gained 6.0%, which was more than the 3 major averages. 

Other notable movers included Chinese stocks, and U.S. stocks with high exposure to the Chinese market, which sold off sharply in the first half of the week. This followed President Xi Jinping securing an unprecedented, third five-year term to serve as China’s leader. That wasn’t surprising, but it did come as a shock to many investors that he managed to surround himself only with loyalists who are apt to help him pursue tighter regulations and the continuation of China’s zero-Covid policy. 

JD.com ($JD) and Pinduoduo ($PDD) were losing standouts for Chinese stocks while Las Vegas Sands ($LVS) and Starbucks ($SBUX) also suffered heavy selling on concerns related to Xi’s power grab. By the end of the week, however, these names were able to reclaim some of their losses. 

There is a growing belief among market participants that the Fed will soften its approach after the November meeting, with expectations of 75 bps and then 50 bps, respectively for the next two hikes. The policy move from the Bank of Canada this week further fueled this notion. The Bank of Canada raised its key policy rate by 50 basis points versus an expected 75 basis points. The European Central Bank, however, delivered a 75 basis point increase for its key policy rates, as expected.

This week had a ton of economic data that both supported and undermined the notion that the Fed will soften its approach soon. There is still much uncertainty. Some of the data releases included:

  • September Personal Income 0.4% (consensus 0.3%); Prior was revised to 0.4% from 0.3%; September Personal Spending 0.6% (consensus 0.4%); Prior was revised to 0.6% from 0.4%;
  • September PCE Prices 0.3% (consensus 0.3%); Prior 0.3%; September PCE Prices – Core 0.5% (consensus 0.4%); Prior 0.5%
    • The takeaway from the report is that with continued income growth and a slightly hotter than expected Core PCE price growth, the Fed has an argument to maintain its aggressive with rate hikes.
  • Weekly Initial Claims 217K (consensus 220K); Prior was revised to 220K from 214K; Weekly Continuing Claims 1.438 mln; Prior was revised to 1.383 mln from 1.385 mln
    • The takeaway from the report is that the initial claims data suggest the labor market continues to hold up well, which of course is something that will continue to draw the Fed’s attention.
  • Q3 GDP-Adv. 2.6% (consensus 2.3%); Prior -0.6%; Q3 Chain Deflator-Adv. 4.1% (consensus 5.3%); Prior 9.0%
    • The takeaway from the report is that it ends a two-quarter streak of negative GDP prints. It also suggests the economy held up well in the third quarter as it started to acclimate to rising interest rates. Real final sales of domestic product, which excludes the change in private inventories, increased a solid 3.3%.
  • October Consumer Confidence 102.5 (consensus 105.5); Prior was revised to 107.8 from 108.0
    • The takeaway from the report is that consumers’ concerns about inflation picked up again in October on the back of rising gas and food prices.

Falling Treasury yields were a big support factor for the stock market. The 10-yr Treasury note yield dipped below 4.00%, but ultimately settled the week down 20 basis points at 4.01%. The 2-yr note yield fell nine basis points to 4.42%.

In other news, Rishi Sunak was elected UK Prime Minister.

This week I only had some deep red adds in $INTC and $CMCSA plus some other moves that you can read about in my weekly portfolio update here. Use that update to help you put together a shopping list of some solid dividend stocks to pick up for the long term.

And if you like updates like this, follow my Twitter or my CommonStock page where I post updates on the economic data throughout the week.

Regards,

Dividend Dollars

Categories
Economics

Stock Market Week in Review – 10/21/22

This weekly market recap is brought to you by Koyfin, a powerful analytical tool that I proud to partner with. Their platform is entirely customizable for whatever data you want to look at including stocks, ETS, mutual funds, currencies, economic data releases (one of my personal favorites used often for these posts), crypto, and even transcripts of company events! Click the link above to get a special offer only for Dividend Dollar readers!

Weekly Review

The market has a strong week with all three major indexes posting gains of over 4.5%! Price action in the Treasury market was very influential over the price action we saw in the stock market.

Monday started off on the right foot with Mike Wilson of Morgan Stanley (who has been right this year with his bear market call) saying that the S&P could hit 4,150 in a technical rally if a recession or earnings capitulation can be avoided. A BofA fund manager survey also showed cash holdings at their highest level since April 2001, acting as a contrarian buy signal.

The rally slowed midweek with market participants listened to a slew of speeches from Federal authorities. Fed President Kashkari said that he could argue for the fed funds rate to go above 4.75% if he doesn’t see improvement in inflation. Fed President Harker said he expects the fed funds rate to be well above 4.00% by end of the year. These comments coincided with the 10-year note yield hitting its highest level since 2008 and the stock market falling back.

Fed President Daly said she thinks stepping down on the pace of rate hikes will help preserve market structure. Fed President Bullard said he hopes to get a deflationary process going in 2023, adding that the job market stays strong.

The Wall Street Journal published an article that predicted that the Fed will raise rates by another 75 basis points at the November meeting, but will then consider a smaller increase at the December meeting. The author, Nick Timiraos, is thought by some to be the Fed’s preferred source for leaking insight on monetary policy in order to gauge the market’s reaction to their plan.

Earnings were generally better than expected this week which helped keep stocks higher this week. Bank of America (I wrote a piece on this earnings report for our position) and Goldman Sachs were standouts in the financial sector; AT&T and Verizon in communication; United Airlines and Lockheed Martin in industrials; IBM and Lam Research in IT. Snapchat and Tesla disappointed.

Other news this week had Liz Truss, the new UK Prime Minister, resigning after about 6 weeks in office.

I was wrong on prediction for the week last week, as we ended much higher than I would have guessed! This coming week could be the same if GDP surprises.

This week I only had some deep red adds in $INTC and $CMCSA plus some other moves that you can read about the portfolio here. Use that update to help you put together a shopping list of some solid dividend stocks to pick up for the long term.

And if you like updates like this, follow my Twitter or my CommonStock page where I post updates on the economic data throughout the week.

Regards,

Dividend Dollars

Categories
Economics

Stock Market Week in Review – 10/14/22

This weekly market recap is brought to you by Koyfin, a powerful analytical tool that I proud to partner with. Their platform is entirely customizable for whatever data you want to look at including stocks, ETS, mutual funds, currencies, economic data releases (one of my personal favorites used often for these posts), crypto, and even transcripts of company events! Click the link above to get a special offer only for Dividend Dollar readers!

Weekly Review

This week might actually have been the craziest week in the market I’ve ever seen. It was a losing week for the S&P despite a 2.6% gain on Thursday after the CPI report.

Investors may be inclined to think that the CPI report was good on account of the Thursday rally, but the report was far from good. Total CPI was up 8.2% year over year versus 8.3% reported last month. Core CPI, which excludes food and energy, was up 6.6% versus 6.3%. This is the highest level of core CPI since August of 1982.

Initially, the markets reacted appropriately with a low opening (the S&P hit a new low for the year here), Treasury yields shot higher, and the USD Index jumped Thursday morning. That move lower coincidentally was also a 50% retracement of the pandemic rally. This technical indicator ignited a rebounding effort that was intensified by short-covering activity and huge buy-volumes from algorithms.

This became a huge rebound and extended outside of our market. The UK gilt market rallied on reports that the Prime Minister could scale back their fiscal stimulus plan.

The Dow swung 1,507 points from its intraday low to its intraday high on Thursday, the S&P swung almost 200 points, and the NASDAQ swung just over 600 points. Huge moves, but there was no follow through on Friday.

The S&P briefly pushed higher on Friday before falling hard. Gilt yields rose on worries about the state of the market now that the Bank of England has pulled its emergency liquidity report, the 10 years note yield hit 4%, and people woke up to the fact that the Thursday rally had no substance.

$JPM, $UNH, $WFC, and $C had some better-than-expected earnings on Friday which provided some support that day. But selling pressure from the 10-year note yield touching 4% proved too much.

Then, to add to the selling pressure, the Index of Consumer Sentiment report showed an increase in 1 year and 5 year inflation expectations, serving as a reminder that the market got carried away with the CPI rally on Thursday.

The sell off on Friday showed very little buying interest from investors. The same can be said of the retail shoppers in September based on the release of that report.

Total retail sales were flat for the month. Sales, excluding autos, were up only 0.1%. These figures are not adjusted for inflation. The uninspiring retail numbers for September suggest that consumers were watching their spending.

The new for this week was definitely loaded on the back end. One noteworthy item from the early week was talk from JPMorgan Chase CEO Jamie Dimon. On Monday, he stated that he thinks the economy will be in a recession in 6-9 months and that the market could fall another 20% if there is something like a hard landing.

Other new items came from the IMF who cut their global growth forecast by 0.2% to 2.7%. Reports showed that new restrictions were being put in place in Chinese cities for rising COVID cases and President Biden claims consequences for Saudi Arabia agreeing to cut oil production. Russia also increased air attacks on Ukraine cities.

The markets were hit this week with consumer discretionary, IT, utilities, and real estate being hit the hardest. Semiconductors were hit the hardest of all with many semi-indexes falling more than 8% this week. Consumer staples, health care, and financials were only sectors to come out ahead this week.

As I said last week, be ready for more losses in the long term! The Fed can still mess this up, if they stay too aggressive and miss the window to cool, pushing us into a recession. Jamie Dimon’s talk only served to reinforce my opinions which I have been stressing on here for weeks!

Next week has nothing of great importance on the economic calendar for the US, but lots to watch abroad which could have a small impact on our markets.

Next week I am thinking we see some more red, but not a huge amount, as investors continue their reality check with the fact that the CPI release was far from great.

This week was so volatile that I didn’t make too many buys, only Activision and my automatic adds, you can read about the portfolio here. Use that update to help you put together a shopping list of some solid dividend stocks to pick up for the long term.

And if you like updates like this, follow my Twitter or my CommonStock page where I post updates on the economic data throughout the week.

Regards,

Dividend Dollars

Categories
Economics

Stock Market Week in Review – 10/7/22

This weekly market recap is brought to you by Sharesight, a portfolio tracking tool that I am happy to partner with. Their platform makes tracking trading and dividend history, understanding your performance, and saving time a breeze. Click the link above to get a special offer only for Dividend Dollar readers!

Weekly Review

2022 Q4 is off to strong start! There was a decent rally on Monday and Tuesday as the market assumed the Fed would slow their rate hike approach soon. A pullback in Treasury yields from last Friday’s close helped push upside higher in the beginning of the week.

The 10-year T notes was at 3.79% last Friday and fell to 3.62% by Tuesday’s close. The two-year note fell 0.12%. At the same time the S&P, Dow, and Nasdaq all had gains of over 5.5%.

The assumption that the Fed would slow was helped by the lower-than-expected ISM Manufacturing and Construction spending and the lower than expected 25 basis point rate increase by the Reserve Bank of Australia.

All did not remain sunny unfortunately, the week ended with a sell off. Treasury yields moved up and the September Employment Report was a reality check for the idea that the Fed would be less aggressive sometime soon.

The employment report showed continued strength in the job market, extra fuel for an aggressive Fed. There were also some hawkish Fed talks this week; Atlanta Fed President Bostic said that the inflation fight is still in its early days and the Minneapolis Fed President Kashkari said that he is not comfortable pausing until there is evidence that inflation is cooling.

Global politics also caused some worries that were in play for the week. OPEC+ announced a production cut of 2 million barrels per day starting next month. This sent oil prices surging with WTI crude futures rising 17.3%. The surge in oil prices kept the energy sector’s gains intact this week. It outpaced the other sectors in the S&P by a margin of 13.9%. On the other hand, the real estate sector suffered the most with a 4.2% loss.

The 10-year yield ended the week at 3.88%, the two year rose to 4.3%. Despite heavily losses on Friday, the market was able to hold onto some gains. The S&P was us 1.5%, Dow 2.0%, and Nasdaq 0.7%.

The data release schedule has some events to keep eyes on. Pay attention to the FOMC minutes on Wednesday, the CPI reading on Thursday, and the retail data on Friday.

As I said last week, inflation has not waivered much, the job market is still healthy, and the average consumer is still doing fairly well. The data continues to show this; however, the data is delayed by a few weeks or a month depending on the report. Because of this delay and because the effects of a hike take time to materialize in those areas, it’s becoming more likely that the Fed stays aggressive with their rate hikes and may push the economy off the cliff before they’ve had time to realize that we’ve missed the window to ease. Be ready for much more losses in the long term, in the short term we could see another somewhat flat week next week, or red if the market continues to be discouraged by the data that supports an aggressive Fed.

Though this week wasn’t too down, I took advantage of the discounts with some buys in Activision ($ATVI), Intel ($INTC), and a few others you can read about in the portfolio update here. Use that update to help you put together a shopping list of some solid dividend stocks to pick up for the long term.

And if you like updates like this, follow my Twitter or my CommonStock page where I post updates on the economic data throughout the week.

Regards,

Dividend Dollars

Categories
Economics

Stock Market Week in Review – 9/30/22

This weekly market recap is brought to you by Sharesight, a portfolio tracking tool that I am happy to partner with. Their platform makes tracking trading and dividend history, understanding your performance, and saving time a breeze. Click the link above to get a special offer only for Dividend Dollar readers!

Weekly Review

Greenday knew what they were talking about when they said “Wake me up when September ends”. All three of the major indexes lost over 8.5% in September.

Every week in this month felt sad and desperate for the markets, and this final week was no different. The concerns were rooted in concerns of rising interest rates, extreme volatility across all financial markets, and, of course, worries of a recession.

Since the beginning of the rising rate environment, economists (myself included) have been worried that rising rates too fast could cause a financial accident that could have systemic implications. That worry was given some credence on Wednesday when the Bank of England stepped in to buy UK government bonds in order to restore market conditions. This move was caused by pension funds running into issues with derivative positions leading to margin calls and forced selling.

The Bank of England was set to begin selling gilts next week. They were forced to delay that effort and instead will pursue a temporary buyout of UK government bonds through October 14th.

The stock market had a brief rally on Wednesday (more like a bounce) following the decision. The S&P jumped nearly 2% and the 10 year note moved 25 basis points down. These efforts also helped the British pound to find some support after hitting a record low against the USD. The rally was short-lived as Prime Minister Liz Truss said that she will stick to her tax cut plan, the news that was the original source of the selling of gilts and the pound last week.

This week also showed notable weakness in Apple $APPL. It dropped 8.1% this week, attributed to worries about demand for the new iPhone. Apple was downgraded by BofA to neutral on Thursday given concerns of negative estimate revisions caused by weaker consumer demand. Apple’s weakness of course spilled over into the mega-cap sector.

Apple’s faltering performance also affected investor sentiment and contributed to the S&P breaking down to new lows for the year. Nike $NKE, also contributed with a 12.8% drop caused by 44% YoY excess in inventory. Rent-A-Center $RCII also gave an earnings warning that added to the market’s list of ailments.

The Fed also didn’t help the market this week as Fed officials had full docket of press time this week and reemphasized the need to keep raising interest rates to control inflation. Fed President Mester had the most concerning remark, saying that the policy rates are not yet at a restrictive level. The ECB is expected to give a 75 bp hike at its October meeting on account of the 10% YoY CPI increase in the eurozone.

The CPI reading on Friday and the PCE Price Index for August was out on Friday. The PCE showed 0.2% decrease, however the core PCE showed a 0.2% increased. This, coupled with a surprisingly low initial jobless claims reading on Thursday makes a good case for continued rate hikes by the Fed.

Geopolitically, this was also a rough week. Putin announced the annexation of four Ukraine regions on Friday. This move is not recognized by Ukraine and most other countries. However, if Putin now recognizes these regions as his, continued conflict in those areas could cause quick escalations in violence and military actions.

It was a pretty tough week in many ways, luckily the data release schedule for next week is pretty slim as far as the US is concerned. Australia’s and New Zealand’s rate decision will be important to watch, rate hikes are expected.

As I said last week, with inflation staying stubborn and the negative effects of the last four interest rate hikes finally starting to materialize, it’s becoming more likely that the Fed stays aggressive with their rate path throughout the end of the year. It’s also becoming more likely that this “soft landing” that the Fed keeps talking about does not happen. Next week may be flatter or less volatile than this week, but I still expect to see some red.

Throughout all the red this week, I took advantage of the discounts with some buys in Realty Income ($O), Intel ($INTC), and a few others you can read about in the portfolio update here. Use that update to help you put together a shopping list of some solid dividend stocks to pick up for the long term.

Regards,

Dividend Dollars

Categories
Economics

Stock Market Week in Review – 9/16/22

This weekly market recap is brought to you by Sharesight, a portfolio tracking tool that I am happy to partner with. Their platform makes tracking trading and dividend history, understanding your performance, and saving time a breeze. Click the link above to get a special offer only for Dividend Dollar readers!

Weekly Review

The stock market looked rosy at the start of this week, working off of the rally that ended the week last week. Upside momentum quickly left the scene after the August CPI report gave the market a reality check. It renewed concerns about persistently high inflation, an aggressive Fed rate-hike path, and a potential hard landing that would undercut current earnings estimates.

The reaction from both the stock market and the bond market was rough. This week was the fourth losing week out of the last five weeks for stocks and Tuesday’s sell-off was the fifth-largest loss for the S&P 500 in history. By the end of the week, the S&P 500 fell below the psychologically important 3,900 level.

I believe this move was primarily caused by hotter-than-expected inflation data likely means the Fed is going to stay on an aggressive rate-hike path. The Fed’s goal, which they’ve been saying for a while, is to get inflation under control, and it has no interest in being the stock market’s friend.

As expected, the fed funds futures market moved after the CPI release. It priced out any expectation of a 50-basis point increase at the September 20-21 FOMC meeting. Instead, it now prices in a 100% probability of a rate hike of at least 75 basis points at the next meeting, according to the CME FedWatch Tool. The 2-yr note yield, which is more sensitive to changes in the Fed funds rate, rose 28 basis points this week to 3.85%. The 10-yr note yield rose 13 basis points on the week to 3.45%.

Other economic data this week included a better-than-feared August PPI report that did nothing to calm the sell-off. The August Retail Sales report was also less than exciting. Additionally, several companies ($FDX, $NUE, $EMN, and $ARNC) issued earnings warnings this week. The S&P 500 materials sector was the biggest laggard on the week, closing down 6.7%, notably due to the big material company’s warning.

The real estate and communication services sectors suffered the steepest losses after materials, closing down 6.5% and 6.4%, respectively. Energy and health care were the “best” performing sectors this week, closing down 2.6% and 2.4%, respectively.

Next week is an important week event wise with the Fed’s monetary policy statement and interest rate decision happening on Wednesday. There are also a number of other large country’s announcing  their interest rate decisions including Japan, Great Britain, Switzerland, and China.

With inflation staying stubborn and the negative effects of the last four interest rate hikes finally starting to materialize, it’s becoming more likely that the Fed stays aggressive with their rate path throughout the end of the year. It’s also becoming more likely that this “soft landing” that the Fed keeps talking about does not happen. I think the Fed’s decision next week and the market’s reaction could be a big indicator of what’s to come for investors over the coming months. I think next week will have some downside, however much of next week’s rate hike seems to be priced into the market, so I’m hopeful that next week won’t be as red as this week. Throughout all the red this week, I took advantage of the discounts with some buys in Cummins ($CMI), Intel ($INTC), and a few others you can read about in the portfolio update here. Use that update to help you put together a shopping list of some solid dividend stocks to pick up for the long term.

Regards,

Dividend Dollars