Tuesday , July 27 2021
Home / Tag Archives: equity markets

Tag Archives: equity markets

Boo! Powell scares the children!

Preface: Explaining our market timing models  We maintain several market timing models, each with differing time horizons. The “Ultimate Market Timing Model” is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade. The Trend Asset Allocation Model is an asset allocation model that applies trend following principles based on the inputs of global stock and...

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China rides to the rescue?

The headlines from last week sounded dire. It began when China’s May economic activity report was disappointing, with industrial production, retail sales, and fixed-asset investment missing market expectations.   Then the Federal Reserve took an unexpected hawkish turn. The statement from the FOMC meeting acknowledged that downside risks from the pandemic were receding as vaccination rates rose. It raised the 2021 inflation forecast dramatically, shaded down next year’s unemployment...

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The market’s instant FOMC report card

Mid-week market update: It’s always difficult to make any kind of coherent market comment on FOMC meeting days. The market reaction can be wild and price moves can reverse themselves in the coming days.  Nevertheless, experienced investors understand that it’s not the announcement that matters, but the tone announcement compared to market expectations. Bloomberg Economics conducted a survey ahead of today’s FOMC meeting and found the following:  FOMC will raise inflation, growth...

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The bond market tempts FAIT

Remember when I called for a bond market rally (see What a bond market rally could mean for your investments). The 10-year Treasury yield broke support last week and shrugged off a hot CPI print. Is the bond market tempting FAIT, or the Fed’s Flexible Average Inflation Targeting framework?  Here are some of the broad market implications. Transitory inflation May CPI came in ahead of expectations, but more detailed analysis shows that the “hot” components were largely transitory...

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Pigs get slaughtered…

Mid-week market update: Traders have an adage, “Bulls make money. Bears make money. Pigs just get slaughtered.” It’s time for equity bulls to be near-term cautious on stocks, though I expect any market weakness to be relatively shallow.  In my weekend update, I had set out a number of tripwires (see Time is running out for the bulls). So far, the S&P 500 is struggling to overcome resistance even as it exhibits a negative RSI divergence.  On the other hand, the 10-year Treasury...

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Is the S&P 500 wildly overvalued?

Several readers asked me to address the valuation warning from Jason Goepfert of SentimenTrader, who found that the S&P 500 is wildly overvalued based on a combination of real earnings yield and dividend yield.  Let’s begin by unpacking Goepfert’s chart (annotations are mine). There were five instances since 1970 when the market appeared overvalued based on this metric. The market had already begun falling in two episodes (red boxes: the Nifty Fifty top and the GFC top), and this...

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Interpreting the gold breakout

Did anyone notice the upside breakouts in both gold and gold mining stocks? In the short-term, gold may have to contend with overhead resistance at the site of its 200-day moving average (dma). While I am no gold bug, the breakout could be a technical signal of an intermediate bullish phase for precious metals.  This week, I explore the bull and bear case for gold and the macro implications of this upside breakout. Why I am bullish on gold There are a number of reasons to be...

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Q1 Earnings Monitor: The jobs puzzle

This will be the final Q1 Earnings Monitor as 88% of the S&P 500 has reported and the results are mostly known. It was a solid earnings season and beat rates are well above average. Callum Thomas of Topdown Charts observed that analysts have scrambled to revise their estimates upwards in response to earnings reports and corporate guidance.   Before the bulls gets too excited, there was one puzzle in a sea of strong earnings reports. If the economy as shown by earnings is so...

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Do valuations matter anymore?

How expensive are US equities? Fed Governor Lael Brainard warned about “stretched valuations” in the preamble to the May 2021 Financial Stability Report:  Vulnerabilities associated with elevated risk appetite are rising. Valuations across a range of asset classes have continued to rise from levels that were already elevated late last year…The combination of stretched valuations with very high levels of corporate indebtedness bear watching because of the potential to amplify the effects...

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Q1 earnings monitor: Priced for perfection

We are well into Q1 earnings season. 60% of the S&P 500 has reported their results and the top and bottom line beat rates are well above average. The V-shaped recovery is complete.  Here is the more difficult question. The six largest companies in the S&P 500 reported last week and all of them beat consensus EPS expectations. Why was the S&P 500 flat last week? Supply chain bottlenecks Even though FactSet reported that the market rewarded EPS beats and punished...

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