Saturday Night Quarterback (on a Sunday) says, For the week ahead expect…
I’m hoping for some clarity this week on the market trend after Friday’s wild day. Friday’s intraday moves summed up the uncertainty about the direction of this market.
Special Report: Your 10 best moves for the rest of 2023–Part 1, 10 trends for the rest of 2023
In this Special Report I’m going to start by sorting out the data that the market’s moves will likely depend on for the rest of 2023. That’s today’s post, Part 1 of this Special Report. Then I’ll try to handicap the likelihood that the data will zig or zag. And give you a sense of how far away from the current consensus the actual result might fall. And then finally, I’ll give you 10 moves for the rest of 2023 that are the most likely, in my opinion, to result in profits and that won’t wind up costing you big if the data winds up throwing investors a curve.
Please Watch My New YouTube Video: Trend of the Week What’s the Story
Today’s Trend of the Week is What’s the Story? What is happening with the market? Retail numbers are up but stocks are down. Wall Street was expecting a 0.4% growth in retail from June to July, and we got .7%. While big-ticket items like furniture, electronics, and appliances remained down, e-commerce sales were up 1.9%, and consumers seem to be spending money on things like dining out. Retail numbers were much better than expected, so why did stocks go down? At the time of filming (August 15), the S&P 500 and Nasdaq Composite were both down nearly 1%. Part of the reason we’re seeing the market go down, I think, is because money is going into bonds, instead of stocks. The U.S. economy is doing markedly better than the overall international economy, and people are looking to buy Treasuries. The yield on the 10-year treasury went up to 4.27 on August 15 and real yields, (yield minus inflation), are near a 14-year high. The expectation is that inflation will continue to moderate, but the Fed will likely not be cutting rates any time soon. As more money goes toward treasuries, less money is available in the market to buy stocks.
Negative technicals build on each other for another down day
The Dow Jones closed down 291 points, or 0.84%. That moved the index below its 50-day moving average.
The Standard & Poor’s 500 was off 0.77% and the NASDAQ Composite fell 1.17%. Both indexes were already below their 50-day moving averages. The 50-day moving average is a key support level for technical analysts. All things being equal, a drop below a support level like this is usually enough to keep stock prices falling until they find the next support level or until something fundamental changes. Stocks had been up so strongly since May that the next support level for the S&P 500 is down at the 200-day moving average, off another 250 points at 4127 from today’s close at 4370. I’d note that to my eye this would still leave stocks in a trading range of 4,000 to 4,500. No nothing to panic about if that’s the extent of the decline. But all things aren’t equal. The global financial markets are coping with a big increase in bond yields. The yield on the 10-year Treasury rose to 4.28%. That was up another 3 basis points today (and an increase of 47 basis points in the last month.)
Please Watch My New YouTube Video: Trend of the Week Are We Looking at a Supply Crisis for Treasuries?
Today’s Trend of the Week is Are We Looking at a Supply Crisis for Treasuries? The federal deficit grew by $1.39 trillion in the first nine months of fiscal year 2023. That’s a huge addition to the deficit, an increase of 170% compared to the first nine months of 2022. The Treasury also recently increased its forecast for borrowing in the July-September quarter to another $1 trillion. This fast increase in the supply of Treasuries has been tough on the market. The Fed is trying to shrink its balance sheet and not buy as many new Treasuries. Private sector investors at auction are demanding a bigger discount. And because of the debt ceiling shutdown in new debt and the drawdown on the Treasury’s cash balances, the treasury has been issuing a lot of short-term bills to rebuild its buffer. Right now, however, Treasury is trying to move away from the short bills and looking to selling longer maturities. The market has little appetite for longer maturities as inflation seems to have staying power. Recent auctions on 7-20 year treasuries have been pretty weak. If you’re looking to buy 10-year Treasuries, look for an extra yield premium around 5% or so before the market is down dealling with as with this supply issue.
Saturday Night Quarterback (on a Sunday) says, For the Week Ahead Expect…
Wall Street is starting to look past this quarter’s earnings recession and lick its chops at a return earnings growth in the third quarter. Earnings for the second quarter are turning out to be just as depressing as everyone anticipated. With 80% of the companies in the Standard & Poor’s 500 already reporting, earnings per share for the companies in the index are down more than 7% from the second quarter of 2022. this quarter will mark a third straight quarter of earnings declines. But, increasingly, Wall Street analysts are forecasting a return to earnings growth (if you exclude earnings from energy companies) in the third quarter.
Deja Vue all over again–Fitch Ratings puts U.S. debt on “rating watch negative”
In 2011 in an earlier debt ceiling battle, S&P Global Ratings downgraded the U.S. credit rating from AAA on the risk that the United States would default on its debt. Yesterday, May 24, Fitch Ratings moved the United States to “rating watch negative” on the risk that Congress would fail to act in time to prevent a U.S. default on the country’s government debt.
The debt ceiling crisis gets a new player: the Federal Reserve (maybe)
Minutes from the Federal Reserve’s May 3 meeting show that some Fed officials want the central bank to be ready to step in if inaction in Washington produces a big drop in the financial markets. Chair Jerome Powell has in public repeatedly said that “no one should assume that the Fed can protect the economy” if the Treasury can’t make good on all federal obligations. But that doesn’t mean, the minutes suggest, that the Fed will do nothing.
Financial markets begin, and I stress “begin,” to price in a debt ceiling default
You’d only notice if you’re paying very close attention to yields at the short end of the Treasury market. But bond traders are seeing what looks like the very beginning of a move to price in the possibility of a default by the U.S. government on its debt if the debt ceiling isn’t raised sometime between now and September. Analysts at JPMorgan Chase noted last week that yields on a three-month Treasury bill have spiked, while one-month yields have plummeted, a gap they noted is the “widest in over 20 years.” The gap may reflect investors’ fear of a default over the summer.
Treasury yields jump as prices fall–What me worry?
Today at 2:30 p.m. New York time the yield on a 10-year Treasury was up 10 basis points to 3.55%. Yesterday the yield had dropped to 3.50%. The yield on the 2-year Treasury, very sensitive to sentiment on Fed interest rate policy, crossed back above 4% to 4.15%. Yesterday the yield had dipped to 3.99%. Another day like this and we’ll see some short-term yields, 6-month perhaps–above 5% again.
What does the collapse of Silicon Valley Bank mean for your portfolio?
The collapse of Silicon Valley Bank means both a whole lot for your portfolio and very little. It depends. I’ll explain.
Special Report: 5 steps for 5 months–your first three moves for NOW
This is going to take me a while to get all five steps posted. The market situation is very complicated right now and the appropriate solutions are very specific. I’m going to start with the short-term moves you need to be making NOW and then gradually extend my recommendations to cover the entire next five months. I’ve now posted Steps #1, #2, and #3
Download Jim’s eBook for Free
