Digital Finance Analytics (DFA) Blog
"Intelligent Insight"
In today’s market update we look at the shift to the negative, as the bears are back, suggesting the rally was in fact of the bear market variety. And with shaky news from China and the Euro area, ahead of Jackson Hole, we should expect more weakness. Gold was also weaker.
Go to the Walk The World Universe at https://walktheworld.com.au/
As expected, the Dow snapped a four-week win streak on Friday, as investors paused their bullish bets on stocks amid fears that Federal Reserve Chairman Jerome Powell could push back against the idea of a dovish pivot at his Bankers Fest at Jackson Hole next week. It was a decisive pivot that snapped the longest weekly rally since November, as short-sellers resurfaced and investors turned cautious after Federal Reserve officials beat the drum on hiking rates.
Treasury yields climbed, while the dollar capped its best week since April 2020. As a result, the S&P 500 Index notched its biggest daily decline since June, sending the benchmark to its first weekly loss in five weeks. The tech-heavy Nasdaq 100 under-performed major benchmarks, with growth-related stocks among the hardest hit Friday. Meanwhile, Wall Street’s fear gauge, the Cboe Volatility Index, jumped the most in more than two weeks, back above 20.
Note though that the expiration of $2 trillion in options, obliging investors to either roll over existing positions or start new ones, set the stage for a volatile session as failure to break a key threshold for the S&P 500 around 4,300 appeared to open the door to selling positions. And bears pounced. A basket of the most-shorted stocks dropped more than 6%, extending its weekly loss to 12% and giving short sellers their best week since March 2020.
Against a backdrop of fear and volatility, the dollar marched higher for a third day in a row. Treasuries fell, with the two-year Treasury yield, the most sensitive to policy changes, jumping 4 basis points.
Ahead of the Fed’s Jackson Hole gathering next week, officials reiterated their resolve to raise rates to curb stubbornly high inflation. Fed officials have made clear that they need to see clear and convincing evidence that price pressures are subsiding before slowing or suspending rate increases.
Minutes released Wednesday from the Fed’s July 26-27 board meeting reiterated that sentiment, noting inflation remains “unacceptably high.” Taking that into account, the U.S. central bank has all the ammunition it needs to continue raising interest rates until it sees CPI coming back down to its 2% target. In that case, the truth is the markets are set a fall and the battle for inflation dominance will likely run for much longer than the markets have been expecting – we truly are now entering the Twilight Zone.
Go to the Walk The World Universe at https://walktheworld.com.au/
As expected, the Dow snapped a four-week win streak on Friday, as investors paused their bullish bets on stocks amid fears that Federal Reserve Chairman Jerome Powell could push back against the idea of a dovish pivot at his Bankers Fest at Jackson Hole next week.
It was a decisive pivot that snapped the longest weekly rally since November, as short-sellers resurfaced and investors turned cautious after Federal Reserve officials beat the drum on hiking rates. Treasury yields climbed, while the dollar capped its best week since April 2020.
As a result, the S&P 500 Index notched its biggest daily decline since June, sending the benchmark to its first weekly loss in five weeks. The tech-heavy Nasdaq 100 under-performed major benchmarks, with growth-related stocks among the hardest hit Friday. Meanwhile, Wall Street’s fear gauge, the Cboe Volatility Index, jumped the most in more than two weeks, back above 20.
Note though that the expiration of $2 trillion in options, obliging investors to either roll over existing positions or start new ones, set the stage for a volatile session as failure to break a key threshold for the S&P 500 around 4,300 appeared to open the door to selling positions. And bears pounced. A basket of the most-shorted stocks dropped more than 6%, extending its weekly loss to 12% and giving short sellers their best week since March 2020.
Against a backdrop of fear and volatility, the dollar marched higher for a third day in a row. Treasuries fell, with the two-year Treasury yield, the most sensitive to policy changes, jumping 4 basis points.
Ahead of the Fed’s Jackson Hole gathering next week, officials reiterated their resolve to raise rates to curb stubbornly high inflation. Fed officials have made clear that they need to see clear and convincing evidence that price pressures are subsiding before slowing or suspending rate increases.
Minutes released Wednesday from the Fed’s July 26-27 board meeting reiterated that sentiment, noting inflation remains “unacceptably high.”
Taking that into account, the U.S. central bank has all the ammunition it needs to continue raising interest rates until it sees CPI coming back down to its 2% target. In that case, the truth is the markets are set a fall and the battle for inflation dominance will likely run for much longer than the markets have been expecting – we truly are now entering the Twilight Zone.
Go to the Walk The World Universe at https://walktheworld.com.au/
As I discussed at the weekend, analysts are deeply divided on the future trajectory of markets, some pointing to the risks of recession ahead, and weaker earnings, others highlighting low unemployment, and positive market momentum. This polarisation is more extreme than I have seen in recent years – with both scenarios emanating from major investment banks. So today, I wanted to explore this division further, to consider again whether the US stock market is poised to extend its longest winning streak of the year — or slip back after another false dawn, with knock on effects across other markets including Australia.
Go to the Walk The World Universe at https://walktheworld.com.au/
A remarkable division has emerged between those calling we have passed the bottom in the current stock market cycle, and those who say we are right in the middle of a bear market rally which will peter out before a further, and significantly deeper fall ahead.
Why? Because on one hand recent results from many stocks have been pretty good, (though future performance is not guaranteed) while inflation some are thinking has peaked. Yet on the other hand, Central Banks are still lifting rates, and consumer confidence is tanking while home prices are easing. And inflation is still way over target.
So, who will be proved more right? In this week’s market review we will start in the US, go across to Europe and Asia and end in Australia, as well as touching on metals, oil and crypto.
US stocks finished the week on solid footing, with traders assessing whether an inflation slowdown could soon make the Federal Reserve reduce the pace of its most-aggressive tightening campaign in decades and prevent a hard landing.
Defying the crowd of sceptics who dubbed the rebound a bear-market rally, short-covering or unwinding of hedges, the S&P 500 notched its fourth straight week of gains — the longest winning run since November — with big tech leading gains on Friday.
The gauge has recouped half of its losses from January through June, topping the so-called 50 per cent Fibonacci retracement level. It’s now sitting about 1.5 per cent below its 200-day average — a threshold crossed by the Russell 2000 gauge of small caps.
Go to the Walk The World Universe at https://walktheworld.com.au/
A remarkable division has emerged between those calling we have passed the bottom in the current stock market cycle, and those who say we are right in the middle of a bear market rally which will peter out before a further, and significantly deeper fall ahead.
Why? Because on one hand recent results from many stocks have been pretty good, (though future performance is not guaranteed) while inflation some are thinking has peaked. Yet on the other hand, Central Banks are still lifting rates, and consumer confidence is tanking while home prices are easing. And inflation is still way over target.
So, who will be proved more right? In this week’s market review we will start in the US, go across to Europe and Asia and end in Australia, as well as touching on metals, oil and crypto.
But before I start, a quick request. If you value the content we produce, please do like the post, and consider subscribing to receive future updates. This really makes a difference to us getting our messages out, as views, likes and subscriptions drive the YouTube algo. And a word of thanks to all those who support what we do.
US stocks finished the week on solid footing, with traders assessing whether an inflation slowdown could soon make the Federal Reserve reduce the pace of its most-aggressive tightening campaign in decades and prevent a hard landing. Defying the crowd of sceptics who dubbed the rebound a bear-market rally, short-covering or unwinding of hedges, the S&P 500 notched its fourth straight week of gains — the longest winning run since November — with big tech leading gains on Friday.
The gauge has recouped half of its losses from January through June, topping the so-called 50 per cent Fibonacci retracement level. It’s now sitting about 1.5 per cent below its 200-day average — a threshold crossed by the Russell 2000 gauge of small caps.
Go to the Walk The World Universe at https://walktheworld.com.au/
Wall Street ended lower after a choppy session on Monday, with declines in Exxon Mobil and other energy companies weighing against gains in Boeing as investors digested the U.S. stock market’s biggest monthly gains in two years.
The Dow Jones Industrial Average slipped 0.14%, or 46 points, the Nasdaq was down 0.2%, and the S&P 500 fell 0.3%.
Energy fell more than 2% to lead the broader market lower, pressured by a nearly 5% slump in oil prices after the latest data pointing to weakness in the Chinese housing market and factory activity stoked fresh recession concerns.
U.S. House of Representatives Speaker Nancy Pelosi was set to visit Taiwan on Tuesday. China warned that its military would never “sit idly by” if she visited the self-ruled island claimed by Beijing.
“Increased recession fears since the release of our Mid-year outlook have prompted substantial revisions to global growth,” Morgan Stanley said, highlighting the “lack of a bounce-back in China” as one of the key drivers. The bank now sees global growth at 2.4%Y, 50 basis points lower than its forecast in May.
Go to the Walk The World Universe at https://walktheworld.com.au/
In this week’s market review in what was a chaotic week, we look at how the financial markets reacted to bad news on inflation, and rising target rates from Central Banks, and solid earnings from tech megacaps which brought some solace to traders though worries about recession risk remain.
After Thursday’s data showed the U.S. economy contracted in the second quarter, stocks rose as traders bet rates would rise more slowly. But is this rally within a bear market or the start of a new bull market. I will give you a clue – hopium is driving things not logic.
But after a horrific first half, the S&P 500 had its best month since November 2020 and Nasdaq 100 had its strongest performance since April of that same year. But this could come to haunt the Federal Open Market Committee.
US financial conditions are looser than they were when Fed hiked in March. So the spike raises the question of when the rebound itself starts to work against the goal of draining bloat from the economy.
It’s an issue investors must weigh in calculating the recovery’s staying power. “Our view is that earnings for all equity classes likely will peak in 2022 and move lower as the economy weakens, revenue growth stalls and input costs remain elevated,” strategists with the Wells Fargo Investment Institute wrote in a note on Thursday.
Go to the Walk The World Universe at https://walktheworld.com.au/
One characteristic of a Bear market are relief rallies, which start strong, but which also eventually run out of steam.
We have seen this during the week, as a gauge of global stocks fell on Friday to end the trading week on a down note after five straight sessions of gains. In addition, the dollar dipped against a basket of major currencies after soft data on U.S. business activity was released.
Friday was wobbly on Wall Street which posted modest losses in early trading but declines on the S&P 500 accelerated as Big Tech names such as Meta and Alphabet lost ground in the wake of earnings from Snap Inc which plunged 39.08%.
Defensive sectors such as utilities and consumer staples were among the few advancers
“Every rally we have had during this bear market, there have been a number of sharp rallies and then they fade and we set new lows and that has been a pretty consistent pattern here,” said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York. “Everybody is looking for the turn, everybody is trying to guess at when we get a sustained rally, and everybody is hoping for one, but to me there is still a lot of unknown ahead of us.”
[CONTENTS] 0:00 Start 0:15 Introduction 0:12 Bear Market Bounces 3:30 Fed and Economic Data 5:40 US Markets 8:20 US Dollar 09:40 Oil 11:10 European Markets 14:00 Wheat Agreement 18:20 Gold 19:30 Asian Markets 20:20 Australian Markets 23:20 NAB Rate Outlook Up 24:30 Outlook 27:25 Crypto 28:00 Summary and Close
Go to the Walk The World Universe at https://walktheworld.com.au/
One characteristic of a Bear market are relief rallies, which start strong, but which also eventually run out of steam. We have seen this during the week, as a gauge of global stocks fell on Friday to end the trading week on a down note after five straight sessions of gains.
In addition, the dollar dipped against a basket of major currencies after soft data on U.S. business activity was released.
Friday was wobbly on Wall Street which posted modest losses in early trading but declines on the S&P 500 accelerated as Big Tech names such as Meta and Alphabet lost ground in the wake of earnings from Snap Inc which plunged 39.08%.
Defensive sectors such as utilities and consumer staples were among the few advancers
“Every rally we have had during this bear market, there have been a number of sharp rallies and then they fade and we set new lows and that has been a pretty consistent pattern here,” said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York. “Everybody is looking for the turn, everybody is trying to guess at when we get a sustained rally, and everybody is hoping for one, but to me there is still a lot of unknown ahead of us.”
[CONTENTS]
0:00 Start
0:15 Introduction
0:12 Bear Market Bounces
3:30 Fed and Economic Data
5:40 US Markets 8:20 US Dollar
09:40 Oil
11:10 European Markets
14:00 Wheat Agreement
18:20 Gold
19:30 Asian Markets
20:20 Australian Markets
23:20 NAB Rate Outlook Up
24:30 Outlook
27:25 Crypto
28:00 Summary and Close
Go to the Walk The World Universe at https://walktheworld.com.au/
