Tag: bitcoin

Posted on

The Weekly Wrap: March 27, 2023

Week in Review

Stocks rebounded last week, rising more than 1%. The NASDAQ Composite continues to be the leader in 2023, up nearly 13% for the year. The Dow Jones Industrial Average, meanwhile, remains in negative territory. Interest rates fell modestly, and the US Dollar had its largest weekly decline since January. Oil prices rose 3.8%, offsetting some of the prior week’s 13% drop. Gold slipped 0.6%, and Bitcoin rose 1.9%.

The Federal Reserve raised its benchmark interest rate for the ninth consecutive meeting last Wednesday. The 0.25% hike was smaller than what most analysts expected prior to the failures of Silicon Valley Bank and Signature Bank, but turmoil in the financial sector was not enough to make the inflation-focused Fed keep rates unchanged. Notably, the FOMC statement, along with the quarterly Summary of Economic projections, implied that rate hikes will soon be in the rearview mirror. Markets are priced for more extreme reversal, including a series of rate cuts by year-end. Federal Reserve Chair Jerome Powell, however, reiterated at his post-meeting press conference that containing inflation was his top priority, and the Fed wouldn’t hesitate to reaccelerate the pace of policy tightening if needed.

Market Internals

Less than half of all S&P 500 stocks are in an uptrend, and that’s true whether you’re looking at them on short, intermediate, or long-term timeframes. Recent weakness has been most pronounced in cyclical sectors – Energy, Materials, Industrials, and Financials. Those sectors were the leaders in 2022. Now they’re the clear laggards.

Trends within the Information Technology sector are the healthiest. Nearly two-thirds of stocks in that sector are above their 100 and 200 day averages. And more than half are above short-term averages. Health Care, Consumer Staples, and Utilities all benefited from risk-off action within the last week.

What’s Ahead

Here’s the key economic data scheduled for this week.

Posted on

The Weekly Wrap: March 20, 2023

Week in Review

Price action was mixed last week, as markets digested the failures of Silicon Valley Bank and Signature Bank. The Dow Jones Industrial Average declined for the sixth time in seven weeks, dragged lower by cyclical sectors like financials, industrials, and energy. Both the S&P 500 and the NASDAQ, however, rebounded sharply, helped by their exposure to growth stocks. Crude oil dropped nearly 13%, falling to its lowest level in more than a year. Commodities not exposed to economic activity, though, rallied sharply. Gold rose 6.5%, and Bitcoin jumped by a third to its highest point since last June. Interest rates were volatile during the week, falling sharply on Thursday and Friday. The US Dollar Index declined 0.9%.

Investors will be watching closely this week, as they wait to see how Fed Chair Jerome Powell and his peers respond to recent turmoil in the banking industry. On Wednesday, the FOMC will decide whether or not to continue hiking interest rates in their battle against inflation. They’ll also release an update to the Summary of Economic Projections, which details members’ internal forecasts for future activity and policy actions. Just two weeks ago, it seemed another hike of 50 basis points was inevitable. Now, even a 0.25% increase is questionable. In any case, expect Powell to face some difficult questions at his post-decision press conference. It will be his first opportunity to publicly address bank failures.

Relatively Speaking

Information Technology and Communication Services are the only two sectors that managed to gain ground over the last month, as the S&P 500 index dropped 4%. Losses were led by Financials, which dropped more than 15%. Other economically sensitive sectors also lagged, as Energy, Real Estate, and Materials each underperformed the index.

Year-to-date performances are largely the same. Growth-focused sectors like Information Technology and Communication Services are outperforming the broader index, with each up by double-digits. Energy and Financials, thought, are each down by double-digits. It’s the inverse experience of 2022, when tech-like stocks led the market selloff.

What’s Ahead

Here’s the economic calendar for the week ahead. Market watchers will be most focused on the Federal Reserve interest rate decision, scheduled for Wednesday afternoon.

Posted on

The Weekly Wrap: March 13, 2023

Week in Review

The stock selloff that began in February has continued into March. Each the S&P 500 Index, the NASDAQ Composite, and the Dow Jones Industrial Average declined more than 4% last week. The S&P 500 is now up less than 1% on the year. The Dow, meanwhile, has fallen nearly 4%, while the NASDAQ is still up more than 6%. Crude oil dropped 3.8%, and Bitcoin fell 7.8%. Gold managed to shake off a weak Monday and Tuesday to end the week 0.6% higher, while the Dollar was mostly unchanged. Interest rates declined.

Any attempt to summarize last week’s market action will fail to do it justice. Things got off to a hot start, when Fed Chair Jerome Powell sat before the Senate Banking Panel and testified that recent economic data would likely require a higher terminal Federal Funds Rate and could force the committee to reaccelerate the pace of interest rate hikes. Financial markets responded in no uncertain terms – stock prices cratered, the Dollar index jumped to its highest level in 4 months, and short-term interest rates moved to new 15-year highs. Powell attempted to walk back those remarks somewhat on Wednesday when he appeared before the House, saying no decisions had been made about the upcoming FOMC meeting. All of that was overshadowed by what happened after the market closed. Silicon Valley Bank, one of the country’s largest regional banks, announced plans to raise capital on Wednesday evening. By Friday morning, the bank was placed into receivership with the FDIC. It’s the largest bank failure since 2008. Expect those 48 hours to be the basis of a collection of books.

Monitoring Macroeconomics

GDP grew at a healthy pace in the final quarter of 2022, helped by a surge in inventories and strong net exports. Economists widely believe that a recession will hit the United States sometime in the latter half of this year, as the Federal Reserve’s battle with inflation heats up and financial conditions tighten. The odds of a ‘soft landing’ – a scenario where the Fed successfully contains prices without creating widespread economic hardship – declined after February data showed the US economy continues to run hot.

Measures of inflation remain well above the Federal Reserve’s 2% target, but CPI has decelerated for 7 straight months, and measures of core price changes have dropped below 5%. Unemployment, meanwhile, remains near 50 year lows, and job creation to start 2023 has been well above the level needed to keep pace with population growth.

What’s Ahead

The SVB saga will continue to dominate the headlines on Monday, as investors grapple with the risk of contagion spreading across the financial system. On Tuesday, though, the narrative and focus could shift, when the BLS unveils its consumer price index for February. We’ll get additional inflation data on Wednesday with the producer price index, along with retail sales, business inventories, and the NAHB housing market index. On Thursday, look for updates on housing starts and import and export prices. The latest University of Michigan consumer sentiment survey results are scheduled for Friday, and so is industrial production. Additional business surveys are scattered throughout the week, including NFIB’s Small Business Optimism, the Philadelphia Fed’s Business Outlook, and the New York Fed’s Services activity.

Posted on

The Weekly Wrap: March 6, 2023

Week in Review

Stock prices rose last week on the back of continued leadership from the NASDAQ Composite, which climbed 2.6% to push its year-to-date gains to 11.7%. The S&P 500 Index rose 1.9%, and the Dow Jones Industrial Average, which has lagged so far in 2023, rose 1.75%. Crude oil volatility continued, as it jumped 4.4%. For the year, it’s relatively unchanged. Gold rose into positive territory for the year, while Bitcoin dropped 5.4%. Interest rates rose, and the US Dollar Index declined.

Layoff announcements have filled the newswires of late, but that hasn’t seemed to dampen the US labor market. In fact, jobs growth during January surged to more than 500,000, the highest level in six months. We’ll see whether that strength continued in February. The Bureau of Labor Statistics will release their latest payrolls data on Friday, where investors will be watching for signs that the Federal Reserve’s war on inflation is starting to take effect. Another strong report would likely raise the odds of a 0.50% hike at the Fed’s March meeting. Today, markets are pricing in expectations of a more mild quarter-point hike instead.

Earnings Expectations and Valuation

The equity selloff in 2022 was not driven by a deterioration in corporate earnings. Though stock prices dropped well over 20% from their peak to trough, expected future earnings remained stubbornly high. That divergence pushed the S&P 500 forward price-to-earnings ratio from more than 20x (a level previously seen only during the late-1990s) to 15x (a level in-line with historical averages).

So far, 2023 has been the opposite experience: stock prices are rising, but earnings are not. In fact, consensus expectations for future earnings are falling. At the beginning of the year, analysts expected 7% EPS growth in 2023. Now they expect earnings to decline. The result is that valuations are elevated once again. The S&P 500 currently trades at a forward multiple of more than 18x.

What’s Ahead

The labor market will be in focus this week, with the BLS announcing February jobs data on Friday. ADP’s estimate of jobs growth arrives on Wednesday morning before the opening bell, followed by January job openings a few hours later. The final estimate for January durable goods orders is released on Monday morning. On Tuesday and Wednesday, Fed Chair Jerome Powell will have ample opportunity to reshape expectations for the upcoming FOMC meeting, when he testifies in front of the Senate Banking Panel and the House Financial Services Committee.

Posted on

March Technical Market Outlook

February lived up to its reputation as one of the worst months of the year. Since the inception of the S&P 500 Index in 1950, stocks have averaged a negative return during the month. Only September has a worse track record. This year, stocks followed their seasonal pattern, as the S&P 500 dropped 2.6%, the Dow Jones Industrial Average fell 4.2%, and the NASDAQ Composite fell just more than 1%. Let’s take a look at how things are shaping up for March.

US Equities

Each month, we start our journey from the top, looking at the market from 30,000 feet up and focusing only on the biggest indexes. In just a handful of charts, we can see exactly the type of investment environment we’re in. Are stock prices rising or are they falling? Should we be erring on the side of buying or selling stocks?

Last month, our view was that stocks had made significant progress toward ending the bear market that began in 2022. Here’s how we put it:

We aren’t out of the woods yet, but we think we see the light at the edge of the forest.

The beauty of technical analysis is that prices offer us clear risk levels – we know exactly where we’re right and where we’re wrong. We entered the month with a clear view of what we needed to keep an eye on:

Small Caps are the ones to watch. With the last few days of gains, the Russell 2000 is above its own key area of resistance. That’s a good sign – small caps were the first to find a bottom last year and could very well lead us higher in 2023. But if IWM is back below 190, expect the rest of the major US indexes to be failing, too.

Well, the IWM fell back below 190. And the rest of the major indexes fell, too.

(Editor’s note: If you’re having trouble seeing any chart in this report, click on it to view a larger version)

We still aren’t out of the woods.

For months, we’ve been talking about resistance near 4100 for the S&P 500. That was our line in the sand – if prices were above that, we wanted to be buying stocks. If they weren’t, we believed a cautious approach was more appropriate.

Nothing changed during February. Stocks failed once again at 4100, and the bears still have the upper hand.

It’s the exact same situation for the NASDAQ. The level here is 12000.

These aren’t just numbers we’re pulling out of a hat. 12000 is the 161.8% Fibonacci retracement from the entire COVID selloff. The market respects these Fib levels, so we do, too.

But it’s not just weird rabbit math that has us watching that level. It’s also where growth stocks peaked relative to value. In September 2020, growth stocks ended a near 15-year run of outperformance. The NASDAQ, which is dominated by those same growth names, is paying attention.

There’s no reason to be aggressively buying stocks as long as we’re below those key levels. We know exactly where we want to be more bullish. So what would it take for us to shift from neutral to outright bearish on US stocks?

We’d need to see more indexes acting like the Dow.

The Dow Jones Industrial Average did more than just fail at overhead supply during February: it ended the month by breaking its December lows. This chart is the biggest threat to the bull case for stocks. If the index that’s been the leader for more than a year is now setting new lows, how can we be buying stocks?

The Dow needs to get back above 33000 in a hurry. If it does, that failed breakdown could be the catalyst that sends prices through that tough overhead resistance near 34500. The longer we’re below 33000, though, the more likely it is that stock prices overall will retest their October lows.

Premium members can log in to see our sector ratings and US Equity Model Portfolio below.

or

View the rest of our March outlook:

March Technical Market Outlook
Fixed Income, Currencies, and Commodities
Communication Services Sector
Consumer Discretionary Sector
Consumer Staples Sector
Energy Sector
Financials Sector
Health Care Sector
Industrials Sector
Information Technology Sector – Unlocked
Materials Sector
Real Estate Sector
Utilities Sector

The rest of this post is accessible to Premium members only.
Login Join Now
Posted on

(Premium) March FICC Outlook

Currencies

By the middle of January, the US Dollar Index was down than 10% from its September peak. The move pushed the index below its 2016 and 2020 peaks for the first time in nearly a year – a heartening development for equity market bulls, who watched Dollar strength wreak havoc on returns in 2022. The downtrend continued as we moved into the second month of the year, and the first trading day of February brought with it new lows for the index. All seemed well.

The rest of this post is accessible to Premium members only.
Login Join Now
Posted on

The Weekly Wrap: February 27, 2023

Week in Review

The S&P 500 had its worst week since December and the Dow Jones Industrial Average dropped 3%, falling into negative territory for the year. The NASDAQ Composite led equity declines for the week, but the growth-focused index is still the best performing major index in 2023, up 8.9% since December. The US Dollar Index jumped 1.3%, its largest 1-week gain in 5 months, and bond returns continued to disappoint as 10-year Treasury bonds fell 1%. Crude oil was flat, and gold prices fell. Bitcoin dropped 6%.

Inflation data released in the month of February consistently disappointed market participants and Fed-watchers alike, as disinflationary trends from November and December slowed. Last week, market declines accelerated when the BEA published updated GDP estimates for Q4 2022 and the PCE Price Index for January. Together, the reports painted a rather bleak picture: growth from consumer spending is slowing and will face even more pressure as excess savings are depleted. Meanwhile, the disinflationary benefit from goods deflation is dissipating, while services inflation continues to creep higher. One month of data does not make a trend, but anyone hoping for evidence that the Fed can achieve a ‘soft-landing’ was surely disappointed by last week’s news.

Market Internals

Despite February volatility, more than half of all stocks in the S&P 500 are in long-term uptrends, as indicated by their positions relative to a moving average price. Between 50% and 60% of issues are above 100 and 200-day moving averages. Short-term trends, though, are significantly weaker. More than 80% of stocks companies are trading below a 20-day moving average.

Uptrend breadth is strongest in risk-on areas of the market. Three-quarters of stocks in the Financials and Consumer Discretionary have healthy, long-term technical structures, while more than 60% of members in the Materials and Industrials sectors are similarly strong. The Utilities and Real Estate sectors are in the weakest technical positions.

What’s Ahead

We’ve got a full week of economic releases ahead, but it’s mostly second-tier data. On Monday, we’ll get January numbers for durable goods and pending home sales. The Dallas Fed will release February numbers for their Manufacturing index as well. On Tuesday, it’ll be home prices, Consumer Confidence from the Conference Board, and three more Federal Reserve bank activity surveys: Chicago, Richmond, and Dallas (services). February manufacturing PMIs from both S&P Global and the Institute for Supply Management are set for Wednesday, and the services portion will come out on Friday. The final read on Q4 unit labor costs and productivity is slated for Thursday.

Posted on

The Weekly Wrap: February 21, 2023

Week in Review

The NASDAQ continues to lead equity gains in 2023, as the tech-heavy index rose 0.6% last week. Both the S&P 500 and the Dow Jones Industrial Average, meanwhile, ended up in the red. The US Dollar Index rose for the third week in a row, putting a lid on commodity prices. Crude oil fell 4%, and gold prices dropped 1.3%. Bitcoin rose nearly 8%, adding to its impressive year-to-date gains, while 10-Year Treasury futures flipped into negative territory for the first time all year.

Relatively Speaking

Risk-on sectors have outpaced risk-off areas of the market over the past month. Consumer Discretionary has risen 7.5%, while Information Technology and Communication Services have each more than doubled the return of the benchmark S&P 500. Energy stocks have brought up the rear, lagging the index by nearly 9%.

Year-to-date performances are largely the same. Growth-focused sectors like Consumer Discretionary, Communication Services, and Information Technology are outperforming the broader index, with each up by double-digits. Risk-off and value-oriented sectors are lagging. It’s the inverse experience of 2022, when tech-like stocks led the market selloff.

What’s Ahead

Markets are closed on Monday as we celebrate the birth of George Washington. On Tuesday, look for preliminary results from S&P Global’s February PMI surveys. We’ll also get the January number for existing home sales. Minutes from the latest FOMC meeting come on on Wednesday, before a flurry of data arrives to end the week. On Thursday, it’ll be the second read on Q4 GDP, along with the Chicago Fed’s National Activity Index, and the Kansas City Fed’s Manufacturing Index. On Friday, we’ll get the January measure for the Fed’s preferred measure of inflation, the PCE deflator. We’ll also get personal income and spending, new home sales, and results from the latest University of Michigan Consumer Sentiment survey.

Posted on

The Weekly Wrap: February 13, 2023

Week in Review

Stocks suffered their worst week of the year, with the NASDAQ Composite failing to closing higher for the first time since December. Despite its, 2.4% decline, the NASDAQ is still outpacing other US equity indexes year-to-date, with a 12% gain. The Dow Jones Industrial Average was flat, and the S&P 500 Index fell 1%. Crude oil is going nowhere fast – in 6 of the last 10 weeks, oil prices have moved 7% or more. From start to finish, though, the total change has been only 0.3%. Gold prices were flat for the week, despite a strengthening Dollar, and Bitcoin dropped 7.7%.

These days, inflation readings are the most important piece of the economic puzzle. Measures of price increases have steadily declined for the past few months, giving rise to the belief that Federal Reserve rate hikes will soon be at an end. Tuesday’s CPI report for the month of January could reinforce that narrative, or topple it. December’s reading dropped sharply, aided by declines in food, energy, other commodities, and autos. If some of those declines reverse and services inflation remains elevated, markets may respond by pricing in more action from the Fed.

Monitoring Macroeconomics

GDP grew at a healthy pace in the final quarter of 2022, helped by a surge in inventories and strong net exports. Economists widely believe that a recession will hit the United States sometime in the latter half of this year, as the Federal Reserve’s battle with inflation heats up and financial conditions tighten. Recent positive surprises in economic data, though, have increased the odds of a ‘soft landing’ – a scenario where the Fed successfully contains prices without creating widespread economic hardship.

Measures of inflation remain well above the Federal Reserve’s 2% target, but CPI has decelerated for 3 straight months, and measures of core price changes dropped below 5%. Unemployment, meanwhile, dropped to its lowest level in almost 70 years in January.

What’s Ahead

All eyes are on Tuesday’s CPI report, where forecasters expect to see inflation decelerate for the seventh straight month. The following day, we’ll see how consumer spending bounced back after a weaker December retail sales report. We’ll also get the January read on industrial production and the Empire State Manufacturing Index. On Thursday, we’ll be watching producer prices, as well as a housing data dump including housing starts, building permits, and the NAHB Housing Market Index. Fourth quarter earnings season also continues.

Posted on

The Weekly Wrap: February 6, 2023

Week in Review

The NASDAQ Composite rose another 3.3% last week, bringing its year-to-date rise to 14.7%. The S&P 500 index rose 1.6%, while the Dow Jones Industrial Average, which has less exposure to the high-flying tech stocks that led the markets this year, fell slightly. The Dollar index rose 1%, putting pressure on commodity prices. Gold dropped 3.3%, and crude oil prices fell 7.9%. Interest rates rose modestly, pushing bond prices lower. Bitcoin continued its strong start to 2023 by climbing another 2%.

The Federal Reserve hiked interest rates another 0.25% last Wednesday, taking their targeted overnight lending rate to a range of 4.50% to 4.75%. That’s the highest their policy rate has been since 2007. At his post-meeting press conference, Fed Chair Jerome Powell reinforced previous guidance for continued hikes and a terminal rate above 5%. He’s encouraged by recent inflation data and the resiliency of the labor market, but said it’s premature to declare victory. When confronted with the reality that markets are pricing in rate cuts in the latter half of the year, Powell repeated that rates will likely need to remain elevated for ‘some time’ in order to achieve the Fed’s mandate of price stability.

Earnings Expectations and Valuation

The equity selloff in 2022 was not driven by a deterioration in corporate earnings. Though stock prices dropped well over 20% from their peak to trough, expected future earnings remained stubbornly high. That divergence pushed the S&P 500 forward price-to-earnings ratio from more than 20x ( a level previously seen only during the late-1990s) to 15x (a level in-line with historical averages).

So far, 2023 has been the opposite experience: stock prices are rising, but earnings are not. In fact, consensus expectations for future earnings are falling. At the beginning of the year, analysts expected 7% EPS growth in 2023. Now they expect earnings to be flat. The result is that valuations are elevated once again. The S&P 500 currently trades at a forward multiple of more than 18x.

What’s Ahead

The Q4 reporting period continues this week. About half of S&P 500 constituents have reported so far, and nearly 100 more will released results for the quarter in the week ahead. The economic calendar is virtually empty – aside from NFIB Small Business Optimism on Tuesday, the only top-tier release will come on Friday when the University of Michigan updates its consumer sentiment index. The void will be filled by Fed-speak. Jerome Powell talks at a conference in Washington on Tuesday, and most other FOMC participants will update the markets on their own views throughout the week.