Yesterday, the Dow Jones opened up nearly 130 points, then dropped over 400 in the next hour and a half before closing down by a mere 63 points. Two main variables are at play, namely quadruple witching and an unexpected robust August retail sales report. Overnight futures activity showed 100 point swings from positive to …
September 15, 2021 – The Delta variant and ongoing supply chain disruptions continue to create havoc. For the first time since the pandemic began, analysts are starting to reduce earnings expectations. Meanwhile, it is full speed ahead in Washington trying to push a $3.5 trillion spending package through Congress. With only a little over $2 trillion in taxes on the table, the obvious result would be a further explosion in debt.
Despite a favorable inflation report, stocks fell again yesterday. The S&P 500 is now down 6 of the last 7 sessions. The NASDAQ Composite fell for the fifth day in a row. The last time it fell 6 consecutive sessions was in August 2019. Despite the recent weakness, the Dow and S&P 500 are still …
September 13, 2021 – House tax proposals do not seem as onerous as President Biden’s earlier request. Assuming the $3.5 trillion spending target is lowered before passage, further moderation of tax requests is likely. Separately, markets are looking ahead to next week’s FOMC meeting where the roadmap for bond purchase tapering will be the prime topic.
Stocks fell once again on Friday despite a strong start. In fact, losses accelerated into the close capping the worst week for the market since February. Over the weekend, the House disclosed, in a 4-page framework, proposals to raise taxes needed to fund its planned $3.5 trillion in spending. As promised, no one earning $400,000 …
September 10, 2021 – Interest rates continue to meander at historically low levels. Once in a generation stimulus measures, global GDP expansion, and inflation spikes should force yields higher. Debt ceiling limits have slowed Treasury issuance, but what happens next could be the catalyst to get back to something closer to “normal” in bond land. Implications are far and wide.
Market averages continue to waffle around recent highs with minor movement for most of this week. If this morning’s futures hold up, major averages will end the week flat. The 10-year Treasury yield is also in a holding pattern, closing near similar levels as two months ago at 1.30%. As we have been espousing, interest …
September 8, 2021 – Disruptions of supply chains and the impact of the Delta variant may be starting to give investors jitters. Over the next two weeks, headlines will be filled with details of the President’s huge spending and tax plans. Investors are unlikely to enjoy that either. The Fed is still buying bonds and the economy is still growing, but markets look ready to take a rest. Any decline should be viewed as a correction, not an end to the bull market.
Stocks fell broadly yesterday as some economists lowered growth projections for the rest of this year, and signs that inflation might be more persistent than transient, gripped investors. The good news is that the Delta variant seems to be near a peak. It is probably past peak in the South and Midwest, which were impacted …
September 1, 2021 – There is a lot of turmoil around the world today, but most has only modest economic impact. Even Ida’s devastation has had little impact on oil markets. We enter a quiet zone after Friday’s employment report. The key events to watch in September are the FOMC meeting culminating on the 22nd, and details of the Biden tax proposals due in a couple of weeks or less.
Stocks finished marginally lower in mixed trading yesterday. Bond rates were little changed. Yesterday’s front page showed a lot of turmoil. The aftereffect of a major hurricane was creating havoc from the Gulf coast to the Northeast. Controversy about the U.S. exit from Afghanistan continued to dominate the news headlines. A huge wildfire took dead …
August 30, 2021 – Fed Chairman Jerome Powell on Friday signaled a start of tapering before the end of the year. At the same time, he indicated that any hike in the Federal Funds rate is likely a long way off. It is a message markets wanted to hear. It is also predicated on his belief that current inflationary pressures are transient.
Stocks rose Friday after a dovish speech by Federal Reserve Chairman Jerome Powell. While his forecast that the Fed would begin to slow the pace of bond purchases before the end of this year was on target with consensus, his statement that the time to think about raising short-term rates was a long way off …
August 27, 2021 – A long-awaited speech by Chairman Powell is set to dominate market activity today. Interest rates rose this week in anticipation of a dovish tone. That, and more spending plans, put Modern Monetary Theory to the test.
The Jackson Hole Economic Policy Symposium is upon us, which started yesterday in Wyoming. This annual symposium has been one of the most anticipated Federal Reserve events each year since it started in 1978, as the Federal Reserve Bank of Kansas City hosts and plans a discussion of critical issues facing world economies. In 2020, …
August 25, 2021 – Stocks rose for the third straight session as signs appear the Delta variant may be near its peak, and interest rates remain stable in front of the Federal Reserve’s Jackson Hole meeting later this week. Moderation of both growth and inflation suggest that the tapering of bond purchases likely will be deferred until later this Fall.
Stocks have rallied this week as messaging from the Fed suggests no tapering decision before the November meeting. The Jackson Hole meeting, virtual this year, will be held at the end of this week and feature comments from Fed Chairman Jerome Powell. While he may discuss conditions that he looks for to institute tapering, he …
August 23, 2021 – Transitions bring volatility. We saw that last week. With several major Federal Reserve events over the next month and little in the way of news coming for several weeks, the seeds are set for more volatility until we get to third quarter earnings season.
Stocks rallied Friday cutting the losses for the week. While there were some favorable earnings reports from retailers, most of the news last week was negative. Afghanistan turmoil, slowing retail sales affected by increases in Covid-19 infections, persistent inflation, and a falling 10-year bond yield all combined to impact financial markets. As I have noted …
August 20, 2021 – A tapering timeline gets closer and closer by the day. Although Fed Funds will remain at zero and real rates (after backing out inflation) are quite negative, tapering is a form of tightening. This, among other concerns, hits stocks that are priced for perfection. Leadership is weakening after rotating from sector to sector since the pandemic began.
Ever since markets bottomed last March, leadership has been rotational. During the shutdown, stay-at-home beneficiaries helped mark the low. Massive stimulus measures helped the likes of eBay, Wayfair, Clorox, Peloton and other Covid lockdown winners propel higher. Mega-cap technology (FANGMAN) names pulled forward years of expected growth. Online sales boomed. Mobile work forces emerged. Cloud …
August 18, 2021 – A wave of bad news sent stocks lower yesterday, but the bad news is more temporary than enduring. The Delta variant impact will pass soon, as will the Afghanistan exit, but there are long-term implications of a weak exit from Afghanistan and economic growth is clearly slowing with or without the impact of the Covid-19 variant.
Stocks fell yesterday, although they finished well off their worst levels of the day. Despite a wave of bad news, there was little emotion to the selling. Bond rates fell as investors sought temporary shelter. Sometimes bad news comes in waves. 1. Delta variant surges are affecting behavior. Schools reopening are facing escalating infections among …
August 16, 2021 – Strong hints that the Fed will release its tapering plans at its September FOMC meeting are sending stocks lower this morning. But even when tapering starts, there is still close to $9 trillion of sovereign debt trading at negative interest rates, a clear headwind to anyone expecting rates to surge once the Fed slows its pace of buying. The sorry end to the Afghanistan saga won’t have a big economic impact, but could help to realign how we spend our defense dollars in the future.
Stocks inched higher on Friday, but futures have reversed course this morning and are now solidly in the red. The issue of most importance to equity investors is word from the Fed that FOMC members are coalescing around the September meeting as the time at which it will finally announce the details of its program …
August 13, 2021 – Summer doldrums are finally upon us with muted action in markets this week. This slow grind higher keeps major averages at record levels. Inflation updates, an actual bi-partisan agreement in DC and supply chain concerns highlight the week.
Finally, we get a relatively tame week with respect to the major averages. The S&P 500 traded within a 25-point band, but is still above last week’s record close. There has been more action in bond land as our 10-year Treasury attempts to put a bottom in at the 1.10% level. Yesterday’s spike in the …
August 11, 2021 – Since last summer, there have been two major rotations within the equity market, first from growth to value last fall, and then from value to growth in late spring of this year. We may now be at the cusp of a third rotation toward cyclicals as the peak of the Delta variant surge is near, and the Fed appears ready to start tapering bond purchases this fall.
Stocks finished higher yesterday, although the NASDAQ Composite fell. There was clear rotation from the growth names toward the cyclical stocks. Banks, energy companies and industrials were notable leaders. The 10-year Treasury continued its week-long rally. It has risen over 20 basis points since ADP issued what turned out to be a weak and inaccurate …
August 9, 2021 – A strong jobs report may pull forward the start of Fed tapering. It also accelerates the growth outlook. Tapering reduces the tailwind for asset prices, but it isn’t a headwind. The path forward gets a bit rockier, any predictions of a major correction aren’t warranted if the Fed stays sensitive to market and economic forces.
Stocks rose to new highs on Friday on the heels of a second consecutive robust employment report. In July, approximately 943,000 new jobs were created. In addition, previous monthly reports were revised upward. The unemployment rate fell to a post-pandemic low of 5.4%, approximately half of what it was before the pandemic began. However, the …
August 6, 2021 – Earnings reports caused more volatility over the past few weeks, but we’re back to or already making new highs in major averages. Profits have been great. Lower interest rates keep P/E’s elevated. How long can this low-rate period last?
New highs were reached, almost across the board, as the Nasdaq continues to break all-time records with the Dow Jones and S&P only a few points away after yesterday’s session. Most large-cap companies have reported earnings over the past few weeks with retailers the last to come. Nearly 90% of them have beaten estimates and …
August 4, 2021 – Stocks are setting records just as earnings are peaking, but there are clouds that we can’t entirely ignore. Shortages persist, and so does inflation. The disruptions in the supply chain are destined to have future impact. There will be big economic packages before Congress in the Fall that could result in trillions of new spending (and taxes), or as little as nothing. As these uncertainties unfold, the future direction of markets will be impacted.
Stocks resumed their march higher yesterday with the S&P 500 setting yet another all-time high. However, the record didn’t exactly create broad based excitement. In an earnings season where the average company is reporting year-over-year earnings gains of close to 90%, managements are expressing all kinds of caution that the future won’t repeat the past. …
August 2, 2021 – Last week’s earnings reports, and stock market reaction, suggests that much of the good second quarter news was already priced in. Going forward, either the news gets better or inflation expectations fall, as the Fed believes. Rising wages and rates suggest inflation isn’t disappearing so fast.
Stocks finished lower on Friday after an earnings disappointment from Amazon#. They finished lower for the week but managed to report modest gains for July. Amazon actually had good results that were generally in line with or slightly better than expectations, but forward guidance for retail revenues was less than hoped for. Many tech stocks …
July 30, 2021 – Name That Tune! The drumbeat of strong corporate earnings continues, but a few dissonant notes around the slowing pace of growth are being sounded. Anticipation of Fed moves has kept investors on edge, but for now the song remains the same.
There used to be a popular game show called Name That Tune. The best players could recognize a song in the least number of musical notes played. Actor Jamie Foxx has resurrected a similar idea recently with a show called Beat Shazam that he hosts with his daughter. (Shazam is a song identification application for …
July 28, 2021 – This earnings season has brought an explosion of record results. Last night Apple, Microsoft, Alphabet and Visa all beat estimates substantially on both the top and bottom lines. Muted overnight reaction suggests that the results were already baked in the cake. Temporary margin gains from better than expected revenue growth may not be sustainable.
Stocks fell yesterday despite continued strong earnings. The FOMC meeting concludes today but the market will most likely be dominated by investor reaction to overnight earnings reports from giants like Apple#, Alphabet#, Microsoft#, and Visa#. Overall, these companies beat revenue and earnings estimates substantially. Aftermarket reaction yesterday afternoon was muted, which was an indication that …
July 26, 2021 – After a rocky start last week, investors figured out that the likely economic consequences of the Delta variant won’t be significant nor long lasting. Hopefully, the virus won’t prove us wrong. The big item on the calendar this week is the FOMC meeting, which isn’t likely to be very controversial.
Stocks rose to new highs Friday culminating in a four-day rally after last Monday’s sharp losses related to rising Covid-19 related fears. Earnings season has been generally on target with extraordinary year-over-year gains compared to last year’s second quarter when much of the country was in lockdown. The 10-year Treasury yield remains low at about …
July 23, 2021 – A scary start to the week is ending at possible all-time highs in major averages. Strong earnings, especially from banks, are pointing to a better Q2 than many expected. That being said, narrow leadership points to some concern in the near term.
We have been expecting market volatility to pick up as our economy shifts gears coming out of the pandemic. Stay-at-home stocks were massive winners in 2020, while reopening companies took the baton for the early part of 2021. Now that we’re getting back to some sense of normalcy, it becomes a much more difficult market …
July 21, 2021 – Bond yields are low because our world is awash with money. As money supply growth recedes and the Fed starts tapering, yields could rise. A lot depends on what corporations and individuals do with excess cash. On the inflation front, while some commodity prices are receding, demand for rents and labor are increasing. It’s hard to buy the Fed’s “transient” argument if rents and wages increase persistently. If inflation becomes enduring, the Fed may have to adjust its plans.
Stocks rebounded from Monday’s sharp loss as investors reevaluated the economic impact of a sharp increase in the Delta variant of Covid-19. While the future courses of infection, hospitalization and deaths are uncertain, given the number of Americans who have already had the disease or have been vaccinated, it appears likely that a highly contagious …
July 19, 2021 – Stocks fell on Friday once again despite strong data on retail sales. Perhaps the biggest issue affecting markets was the acceleration of the Delta variant of Covid-19. In percentage terms, the number of cases in the U.S. continued to climb sharply. There was no better proof of concern than the price action in the stock of vaccine maker Moderna. Last week, its shares rose by almost 20%.
One of the tragedies of the Delta variant is that its impact in developed nations like the U.S. could be significantly muted if more of the unvaccinated got the injections. Experts expect a large majority of Americans who are unvaccinated or had the disease previously to be infected this time around. The Delta variant is …
July 16, 2021 – Interest rates dropped again yesterday, but counterintuitively, bank stocks rose while growth stocks suffered. Our “transition” period is sure to continue to confound investors and bring more volatility. We touch on inflation data, margin expansion and market breadth/valuations in today’s note.
Transition remains the name of the game this week. Major averages, led by mega caps, touched new highs, but are basically flopping around with increased intraday volatility while the average stock continues to weaken. Earnings are coming in hot, as expected. I want to touch on 3 major pieces of this puzzle today, namely inflation, …
July 14, 2021 – The sharp rise in the CPI for June and the Senate Budget Committee’s approval of a $3.25 trillion spending package once again points to a transitional economic moment. Some of the inflationary components may be transitory and the budget proposal is a long way from passing. Change in the macro environment means changes in the investment world as well.
Stocks drifted lower yesterday after a surprisingly hot inflation report for June. This once again raised issues regarding the possible timing of the Fed’s bond purchase tapering process. Strong earnings reports from Goldman Sachs and JPMorgan Chase# were met with yawns by the market as earnings season got underway. Only a strong quarter from Pepsico#, …
July 12, 2021 – Transitions bring both uncertainty and volatility. We saw that last week in the bond market. Expect more of the same in all financial markets over the next several months as investors digest slowing growth rates, less monetary intervention, and greater regulation.
Stocks rose sharply on Friday, largely erasing the large losses experienced Thursday as the yield on 10-year Treasuries fell to as low as 1.25% in early morning hours. While the media tried to explain the sharp drop in yields via fundamental factors such as economic weakness or the spread of the Delta variant of Covid-19, …
July 9, 2021 – Stocks took a breather yesterday with losses across the board. Interest rates continue to defy bears with 10-year Treasury yields down nearly 50bps in short order to 1.29% during one of the most bullish economic data sets of our time. The Delta variant and numerous re-lockdowns globally are causing a fresh bout of fear.
It is often said that smart money resides in bond land. With the total value of bonds outstanding being 3X that of equities, there may be some truth to this mantra simply due to size. Historically, interest rates move well in advance of stocks, but one does not exist without the other. After seeing interest …
July 7, 2021 – Declining interest rates in the second quarter have propelled growth stocks back into a position of leadership. Rates declined again yesterday as stocks fell, but key leaders like Amazon# and Apple# advanced. Can rates decline further? If we look to the past and exclude the panic in the market last spring as the pandemic took hold, it would appear rates are at the low end of their decade-old range. Thus, the sharp rotation from cyclicals to growth stocks may be about to pause should rates find a near-term bottom.
Stocks fell yesterday but finished well above their worst levels. After 7 straight up sessions for the S&P 500, I will attribute the decline to profit taking. There was no significant new news. For more than a decade, growth stocks outperformed cyclical and value stocks by a wide margin. That coincided with a slow steady …
July 2, 2021 – We are now halfway through 2021 and the markets have already given investors generous returns again. What do the next six months look like and what are the most critical data points with which we need to concern ourselves? We discuss the bull/bear debates below with an outlook on the second half.
We are now 15 months removed from a Covid-induced pandemic that shut down the world. Looking back to last year, not many, if any, could have expected such a massive rebound in economic conditions, earnings and a global vaccine rollout that put everyone on a path to normalcy so quickly. Halfway through 2021 we have …
June 30, 2021 – Stocks are on pace for 5%+ gains in June. As long as interest rates stay low, earnings growth will remain the primary market driver. But growth rates will slow going forward. The Fed labels inflation transitory. If it is right, markets can continue to market higher. Tomorrow’s labor report will be an important factor. Job growth may actually accelerate in the months ahead as we return to work and school.
Stocks are on track for their best monthly performance this year with gains of over 5% up to today, the final trading day of the quarter. The catalysts were better-than-expected economic growth, flat interest rates, and a nice earnings tailwind with no interest rate headwind. As noted on Monday, we are at peak growth rates …
June 28, 2021 – We are at peak growth. Our economy is growing close to 10% annualized and inflation is distorted by a sharp but hopefully temporary spike in commodity prices. Over the next year or so, as everything starts to normalize, how will that change our view of the world and central bank policy? We explore that today.
Stocks continued to move higher last week. Although President Biden stepped back from the bipartisan infrastructure bill by demanding it be tied to a broader progressive agenda to spend billions more on social programs, over the weekend he seemed to walk that back a bit, no longer insisting a veto would accompany a stand-alone bill. …
June 25, 2021 – Last week’s critical Federal Reserve meeting is now in the rearview mirror and barely a blip on the radar as the Nasdaq and S&P 500 are back to making new highs. With inflation, growth and stimulus peaking, winners and losers continue to diverge, with technology taking a leadership role as transportation and cyclical stocks digest massive gains. Yesterday’s bipartisan infrastructure deal boosted cyclicals, but much work needs to be done before anything gets passed.
Another day, another new high in the S&P 500, initially pulled by growth relative to value. Mid-day news of a bipartisan agreement on infrastructure was enough to help transportation and deep cyclicals catch up to their growth brethren. Biden announced a $1.2T package, which includes $579B in new spending, agreed upon by 21 Senators broken …
June 23, 2021 – The pandemic has brought with it a housing boom. The rate of increase in home prices will dissipate as high prices bring more sellers to market. Home building will remain strong as the inventory of attractive modern homes remains near record low levels. The elevated construction activity could add 0.5% or more to GDP for an extended period.
Stocks rose slightly yesterday, following through from Monday’s sharp rally. Monday’s gains in the stock market essentially erased the losses last week that followed the FOMC meeting. Long-term interest rates also returned to pre-FOMC meeting levels. The biggest change over the past week has been a slight flattening of the yield curve, and a subtle …
June 21, 2021 – Last week, the Fed began to recognize publicly that inflation and growth were running a bit hot. A mid-course correction might be necessary but will still take several months to implement. Markets reacted by lowering long term inflation expectations slightly as the yield curve flattened. All in all, the adjustments were modest. Soon the focus will return to earnings as the second quarter comes to a close.
The Dow suffered its worst week since October after the Federal Reserve suggested that it might move forward with its intentions to reduce bond purchases and raise the Federal Funds rate. Note the word intentions above. Nothing has been implemented yet. What the Fed said last week, through formal statements and comments from Fed officials, …
June 18, 2021-Fed announcements usually take a few days before the market figures out what they really said. This time is no different as rates initially spiked but made a 180 degree turn yesterday. Winners and losers in the stock market also flip-flopped. What to do now?
Market participants, in both stocks and bonds, waited with bated breath for the conclusion to the 2-day Federal Reserve Meeting. After two straight months of worrisome inflationary data, lower than expected employment reports and a continued rise in consumer spending, many were frightened at the prospect of the Federal Reserve changing their stance and pulling …
May 21, 2021 – After a 3-week hiatus, buyers came rushing back to the markets. Technology stocks rebounded the most, coinciding with a slight reversal in interest rates. Taper talk is coming, and we examine what that means for markets from here.
After three straight days of losses in the overall market, bargain hunters stepped up to the plate yesterday with technology stocks leading the charge higher. The Nasdaq bounced back 1.8%, pointing towards hope of at least a short-term bottom after another mini-correction. The Dow closed up 0.5% and the Russell 2000 Small Cap Index gained …
February 22, 2021 – The biggest factor this morning is the ongoing rise in 10-year bond yields. Higher yields mean lower P/Es for stocks. They impact growth stocks more than value names. As the economy recovers in a rising rate environment, watch for better relative performance from value sectors and a sharp headwind to excessive speculative activity.
Last week was highlighted by a continued move higher for long-term bond yields, a modest correction among high flying tech stocks, and ongoing volatility in the speculative fringes of the stock market. The short squeeze targets like GameStop continued to move back down in the direction of fair value, while SPACs continued to raise billions …