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Inside The Stock Market ...trends, cross-currents, and outlook

Dec 07 2022

Calling “Bull” On Calls For A New Bull

  • Dec 7, 2022

Seriously, another “new bull”—coming so quickly after this summer’s “new bull?” We’ll see. We’re not ones to dismiss price action, because stock prices, in and of themselves, are an important “fundamental.” 
But we’ve seen the Dow go rogue like this once before, and it didn’t end well. 

Dec 07 2022

Illiquidity Rules The Day

  • Dec 7, 2022

Nearly everyone would cite high inflation as the dominant theme of 2022. But we think that the evaporation of a one-time ocean of liquidity better explains the horrendous backdrop for stocks and bonds. High inflation sped up the rate of evaporation, but it was going to occur anyway. 

Dec 07 2022

Don’t Trust The Thrust…

  • Dec 7, 2022

Jay Powell’s speech on November 30th triggered a 1,000-point intraday reversal on the DJIA and left us wondering who might have slipped the Chairman a recent copy of the Green Book.

Dec 07 2022

Goodbye Inflation, Hello Recession?

  • Dec 7, 2022

Unlike the five prior cycle peaks, this year’s inflation peak materialized during an ongoing economic expansion. That implies the “post-peak” monetary policy has never been tighter than today—making a soft landing even more improbable.

Dec 07 2022

The Inversion Before The Inversion

  • Dec 7, 2022

We found the spread between the “Expectations” and “Present Situation” series (the “Confidence Gap”) has historically moved almost in lockstep with the yield curve. As the Confidence Gap plummeted throughout 2021, the implication was the yield curve would soon follow. After some initial resistance, it did. 

Dec 07 2022

Not If, But When

  • Dec 7, 2022

Economists who believe a 2023 recession will be avoided, may not know it but they are “messing with perfection.” Since August, we’ve chronicled several developments that have, without fail, correctly forecasted past recessions, or confirmed that one was already underway. 

Dec 07 2022

“The Streak” Is In Jeopardy…

  • Dec 7, 2022

With less than a month to go, our hypothetical All Asset, No Authority (AANA) Portfolio seems likely to beat the S&P 500 on an annual basis for the first time since 2011. However, it’s doubtful that many real-world, institutional multi-asset portfolios were as heavily exposed as AANA to the best-performing assets—commodities and gold.

Dec 07 2022

Mixed Messages From VLT

  • Dec 7, 2022

While VLT for the S&P 500 continued to trend lower in November, the DJIA calculation edged higher and triggered a new BUY signal. The message could soon get more confusing: A BUY signal for the Russell 2000 would be triggered if that index closes December above 1,813, while the S&P 500 and NASDAQ would have to climb more than 11% and 15%, respectively, to trigger a VLT BUY.

Nov 05 2022

A 2022 Trifecta?

  • Nov 5, 2022

Our Major Trend Index has four factor categories, and three of them (Valuation, Cyclical, Technical) remain negative. Yes, the bearish “trifecta.” If that sounds like a reprint of one of our Monday MTI memos, bear with us (pun intended). We thought the MTI—with over 125 inputs—was pretty exhaustive. It turns out that it’s lacking entire categories pertinent to stock market action:

Nov 05 2022

Beware Of The Changing Of The Guard

  • Nov 5, 2022

A rotation from Growth to Value resumed in grand fashion in October. Qualitatively, new leadership sounds like a good thing. Statistically, bulls ought to hope that the tape gets back into gear.

Nov 05 2022

Economy Soaking Up Scarce Money Supply

  • Nov 5, 2022

There might be “too much money chasing too few goods,” but some monetary measures imply there’s “no longer enough money” to finance production of those goods and still support a stock market that’s far from cheap.

Nov 05 2022

Which Yield Curve?

  • Nov 5, 2022

Last month’s inversion in the 10-Yr./3-Mo. Treasury spread further tilts an already lopsided scale in favor of a U.S. recession in 2023. That spread has been considered the gold standard from an economic forecasting perspective, and is the basis for the New York Fed’s Recession Probability estimate (which, by the way, should break above its critical 35% threshold when it’s published later this month.)

Nov 05 2022

The World As Powell Sees It

  • Nov 5, 2022

When the economy falls into recession, labor market measures will be among the last to tell us. We can’t resist watching them anyway, for two reasons. First, we know that the Fed’s self-proclaimed data dependency is unduly reliant on lagging data points, like the monthly employment report. We want to see what the policymakers are seeing, even if that sometimes means using the same, fogged-up rearview mirror.

Nov 05 2022

Here We Go Again...

  • Nov 5, 2022

No surprise here—October’s rebound put technicians on alert for a “breadth thrust” for at least the fourth time since the bear market began in January. On the whole, technicians have performed better than most this year, but their obsession with new and creative ways to capture the thrust phenomenon is a sign that even this normally flexible crowd is eager to get long(er) as soon as possible.

Nov 05 2022

VLT: A Double-Sworded Edge

  • Nov 5, 2022

“Oversold” usually has a positive connotation in financial jargon, yet history’s worst air-pockets have almost always occurred when the stock market was deeply oversold. More time is needed before a “low-risk” entry point for the S&P 500 will be triggered from the VLT’s currently “oversold” status.

Nov 05 2022

Thoughts On The Secular Outlook

  • Nov 5, 2022

Some have speculated that 2022 might have been the kick-off for a decade-long era in which the broad stock market indexes will make essentially no progress, like 1966-1982. However, that earlier experience provided opportunities within other market segments, which will also stand a much better chance in coming years. 

Nov 05 2022

Valuation Mirage?

  • Nov 5, 2022

Thanks to the 2009-2021 experience, an entire generation of investors can’t distinguish between a stock market that’s down in price and one that’s actually “cheap.” The current bear market seems on course to make that distinction relevant again.

Nov 05 2022

A Trade Contrarians Will Love

  • Nov 5, 2022

Time cycles have been spot on in 2022, with the stock market declining through the mid-year months (May-October) of a mid-term election year. But November 1st saw the opening of the market’s most bullish window according to the same patterns.

Nov 05 2022

Bonds: Not A Four-Letter Word

  • Nov 5, 2022

The bond market bubble has popped, and forward-looking Treasury returns are no longer a disaster. We aren’t suggesting one pile into them with yields near 4% and inflation around 8%, but we think they have suffered a much more substantial de-rating than large-cap stocks.

Oct 07 2022

Roaring Good Times...

  • Oct 7, 2022

Boy, were the pundits ever right about the Roaring Twenties. Less than three years into the decade, the animal they fear most has already roared two times. Actually, the first one, in the first quarter of 2020, was more like a piercing “yap,” taking the S&P 500 down almost 34% in just 23 trading days. The second roar has been a deeper, more guttural one that’s lasted nine months and is probably not done.