The Weekly Grind: September 25, 2023

Make it 10

That’s 10 straight weeks of gains for the US Dollar Index. In the more than 40 years since the inception of the index, a streak of that length has only happened one other time: 2014. Back then, the Federal Reserve was still more than a year away from raising interest rates off the zero lower bound. This time, they’re nearing the end of one of the fastest tightening cycles in decades. Much like what we saw in 2022, stock prices have reacted poorly to the Dollar’s rally. Last week, the growth-oriented NASDAQ Composite led stocks lower with a 3.6% decline. The Dow Jones Industrial Average was moderately better, falling less than 2%. Meanwhile, 10-year Treasury rates rose to their highest level in more than 15 years.

The Federal Reserve surprised almost no one when they decided to keep their short-term interest rate unchanged at last week’s FOMC meeting. The Committee’s Summary of Economic Projections, though, where members detail their estimates for future economic data and policy actions, showed that officials are reticent to prematurely declare victory. Better-than-expected growth this year has the Fed looking at higher-than-expected rates in 2024 and 2025. In June, the FOMC had projected 100 basis points of rate cuts next year. In the September SEP, they cut that number in half.

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The Weekly Grind: September 18, 2023

The US Dollar index has risen for 9 weeks in a row. That’s only happened two other times: 2014 and 1997. Crude oil, meanwhile, has risen 10 of the last 12 weeks, and so has the price of 10-Year Treasury futures. Equity indexes were mostly unchanged for the week, and gold and bitcoin both rose modestly.

Nobody said getting inflation under control would be easy. After more than a year of decelerating price increases from last summer’s peak inflation rate, prices are heading the wrong way once again. Last week’s data release showed the Consumer Price Index jumped to 3.7% in August, up from June’s 3% annual rate, and still well above the Federal Reserve’s 2% annual target. A rebound in energy prices (thanks in part to the aforementioned rally in crude oil) is largely to blame for the disappointing inflation report, while the contribution from food and services continues to decline.

At this week’s FOMC meeting, Fed officials will have to contend with the troubling reversal in CPI while balancing the risks to economic growth.

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Top Charts from the Consumer Staples Sector

The Consumer Staples sector has hovered near the flat line all year, despite a big gain for the benchmark S&P 500 index. Only the Utilities have turned in a worse performance so far in 2023.

Perhaps the final quarter of the year will be a different story? October, November, and December have historically been the best months of the year to own the Staples, so they’re worth watching closely for any signs of a bounce.

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(Premium) Utilities Sector Deep Dive – September

It’s tough to outperform at all when you’re mired in a protracted downtrend. The Utes are stuck on the left side of the weekly Relative Rotation Graph, alternating between the ‘Lagging’ and ‘Improving’ quadrants, but never reaching the ‘Leading’ one.

It’s a trend that’s been in place for the last 15 years.

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(Premium) Consumer Staples Sector Deep Dive – September

If we’re going to see the Consumer Staples bounce, it’ll need to start with an improvement in breadth.

Today, nearly three-quarters of the sector’s constituents are in long-term technical downtrends, while the other quarter remain in technical uptrends. But things are deteriorating on a short-term basis, where just 1 in 10 are in short-term technical uptrends.

The sector will need to turn things around in short order if it’s to have any hope of riding a fourth quarter rally.

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The Weekly Grind: September 11, 2023

Week in Review

Crude oil was the week’s big winner, climbing more than 2% to reach its highest levels of the year. That happened even as stock prices erased some of the prior week’s gains, led by a 1.9% decline in the NASDAQ Composite. The US Dollar index finished higher for the eighth straight week – only the third time it’s accomplished that feat in the last 40 years. The Dollar’s strength hasn’t been great for alternatives: Bitcoin had its lowest weekly close since March, and gold prices fell 1%.

Last Tuesday, Saudi Arabia decided to extend its current voluntary oil production cuts of million barrels per day to the end of the year. Russia extended voluntary production cuts of their own. Together, Riyadh and Moscow lead OPEC+, a consortium of oil producing countries that together attempt to influence the global oil market and maximize profit. The impact of OPEC+ production cuts on oil prices has a mixed historical record. Supply cuts are usually in response to weakening economic conditions, where declines in supply are often more than offset by an overwhelming drop in demand. This time, though, the group’s efforts are getting results. WTI Crude has risen from below $70 in June to almost $90 per barrel today.

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