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By Bryan Rich November 26, 5:00 pm EST After a down 7% October, the S&P 500 was down another 3% for November as we started the week. But stocks had a nice day, continuing to bounce from this big trendline we’ve been watching over the past week. |
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And the better news: We have potential positive catalysts on the docket for this week that could put a final stamp on this correction. Powell (Fed Chair) gives a prepared speech on Wednesday at the Economic Club of New York. Remember, we were looking for some signal a couple of weeks ago that the Fed might take a pause normalizing rates. We got it, but from the Atlanta Fed President. This week, any indication from the Fed Chair that rate hikes are nearing an end would be a greenlight for stocks. And then we get new information on U.S./China trade relations by the week’s end as Trump and Xi are scheduled for a sit down at the G20 meetings. Among all of the concerns that might be curbing risk appetite (both in markets and the economy) this one is among the biggest. Progress on that front should also trigger relief in stocks. The combination of a more dovish Fed and some clarity on trade would set up for what could be a very aggressive bounce for stocks into the year end. What stocks do you buy? Join me here to get my curated portfolio of 20 stocks that I think can do multiples of what broader stocks do, coming out of this market correction environment.
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By Bryan Rich November 20, 5:00 pm EST Stocks hit this big trendline today and bounced. |
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This line comes in from the oil price crash-induced lows of 2016. And, as you can see, we have the bottom of the fallout in the futures market on election night, and the lows of last month. This area also puts the S&P 500 right at a 10% decline from the October highs. Is it the bottom of this sharp two-day slide? Maybe. Let’s talk about why stocks have gotten hit, again, this week. Last week, it looked like the fog had lifted. We were looking for the Fed to signal a pause on rates. We got it, to a degree, with the message that the ‘normalization phase’ for rates was in the “final days.” We had the U.S. Treasury name those Saudis to be sanctioned in the Khashoggi murder. The Crown Prince wasn’t one of them – which means the Kingdom was not being sanctioned. And we had news that progress was being made on U.S. China trade. That was all good news for stocks. But the latter two of these hurdles for stocks was reversed over the weekend. We had some confrontational talk from Pence and Xi. And we had news that the CIA investigation would implicate the Crown Prince in the murder of Khashoggi. Everyone is well aware of the U.S./China trade implications. As for the Saudi, implications, it’s more complicated. First, Trump has been trying to make the case for Saudi Arabia’s critical alliance in the fight to defeat ISIS and check of Iran. Maybe more importantly, pushing Saudi Arabia toward an alignment with China and Russia in the long-game would be a grave danger for the U.S. Taking action against the Crown Prince would jeopardize both. So, as I suggested earlier in the month, Trump seems to be leveraging the Saudi crisis to get oil prices lower. He said as much today. And to this point, it appears that he’s settled on the sanctions that have already been levied. If that holds, that’s good for stocks. The risk, given the amount of wealth Saudi Arabia has in U.S. capital markets, is any change in that stance that might mean broad sanctions on the Kingdom of Saudi Arabia. That’s where Saudi liquidations, in effort to secure assets, is dangerous for the stock market. Join me here to get all of my in-depth analysis on the big picture, and to get access to my carefully curated list of “stocks to buy” now.
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By Bryan Rich November 16, 5:00 pm EST Stocks end the week on a strong note. We’ve talked all week about the catalysts to fuel the continuation of recovery in the stock market. The Fed’s signalling that their rate normalization program is in the final steps was a big one. We’ve also possibly cleared the overhang of the potential for broad sanctions on the Saudi government. And now we’re getting movement on the China/U.S. trade negotiations. Again, just in the past few days we’ve cleared a lot of the fog that has been hanging over stocks. With that, as we head into the weekend, let’s take a look at a few charts … |
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On Wednesday, we looked at this chart above. This big retracement level was setting up nice, technically, for another leg higher in the post correction recovery for stocks. It looks like we’re getting it. And I continue to think this may all end in a sharp V-shaped recovery. In the chart below, you can see what the slope of that move may look like. |
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The stock market fears are driven by “what-ifs.” Meanwhile the reality (the “what is”) is clearly supportive of much higher stock prices: strong economic growth, subdued inflation, strong corporate earnings and cheap valuations.
Have a great weekend!
Join me here to get all of my in-depth analysis on the big picture, and to get access to my carefully curated list of “stocks to buy” now.
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By Bryan Rich November 14, 5:00 pm EST Later today Fed Chair Powell will be speaking at a Dallas Fed event. We’ve talked over the past two days about the potential for Powell to use this opportunity to dial down expectations of a December rate hike. Overnight, Japan reported a contraction in their economy for the third quarter. And this morning Germany’s GDP report showed the first contraction in more than three years. Meanwhile, U.S. core CPI came in softer than expected this morning. And the headline number will be hit, in the next reading, by a 28% plunge in oil prices. Add this to the outlook for gridlock in Washington on any further pro-growth policy-making, and Powell has the perfect excuse to start telegraphing a pause on rate hikes. If he does, expect stocks to respond very favorably. We will see. He speaks at 6:05pm EST. Here’s a look at stocks and the decline of the past month, as we head into this Fed discussion on the economy … |
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Technically, today the S&P and the Dow both hit a big retracement level and bounced aggressively. This sets up nicely for the Fed discussion.
Join me here to get all of my in-depth analysis on the big picture, and to get access to my carefully curated list of “stocks to buy” now.
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By Bryan Rich
November 13, 5:00 pm EST
In the past two notes, I’ve focused on oil. And that does indeed seem to be the tail that is wagging the global markets dog.
Oil lost another 8% today. Over the past 31 days, crude prices have dropped 27%.
If we look back over the past five years, the magnitude of that move is only matched (or exceeded) in cases where there was significant manipulation in the oil market and/or a systemically threatening oil price crash.
You can see in the chart above, we’ve dropped 27% over the past 31 days. The other big drops in crude were in February of 2016 (the crash) and in November of 2014 (OPEC’s refusal to cut oil production).
Interestingly, these historic crude price declines were occurring as the Fed was preparing markets for the beginning of its normalization campaign (i.e. moving rates away from the emergency zero interest rate level). And it was these price declines that threw a wrench in those plans.
Despite what the central bankers say, oil prices have a big influence on their read on inflation. Lower oil prices put downward pressure on inflation. And as oil prices were plunging from 2014 through 2016, the Fed clearly and dramatically held back on their rate hiking plans.
On that note, remember yesterday we talked about the prospects that Powell (Fed Chair) may use the opportunity to dial down expectations of a December rate hike, if we see some soft data this week (growth data from Japan and Europe and inflation data from U.S., Europe and UK). We now have a big haircut on oil prices to factor into the inflation data. That too, may give him the excuse to pause on rates. We’ll hear from him tomorrow at a Dallas Fed meeting.
By Bryan Rich
November 12, 5:00 pm EST
Stocks continue to swing around following last weeks midterm elections. Perhaps it has something to do with the uncertain outcome that remains in Florida, given the role Florida will play in the 2020 Presidential election. Perhaps it has something to do with the continuation of the unraveling of the tech giants.
Maybe more importantly, we head into a week with key inflation data hitting for the U.S., Europe and the UK. And we have Q3 GDP numbers coming from Japan and Europe. The Japanese economy is expected to have contracted last quarter.
Slowing numbers in Japan and Europe, along with some tame inflation data might give the Fed Chair (Powell) an excuse to dial down expectations of a December Fed hike. He is scheduled to speak Wednesday afternoon at a Dallas Fed event.
With the idea that the new divided Congress will put the brakes on any new pro-growth economic policies, Powell may be looking for the excuse to slow the pace that rates are rising. That would be a huge catalyst for stocks.
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By Bryan Rich November 8, 5:00 pm EST The midterm elections are behind us, and I’ve suspected that the lift of that cloud of uncertainty would be the greenlight for stocks to make a run into the end of the year.
We’re seeing it start today. Remember, the big work on economic stimulus has been done, and that will continue to drive the best growth we’ve had since 2006. Add to that, there is the potential that Trump can get infrastructure done with a split Congress. With that, it would be a matter of how hot the economy will get. But as I said, there’s probably a better chance that the Democrats will block any more progress on the economic front, to best position themselves for a run at the 2020 Presidential election. Interestingly, this gridlock scenario could actually be the optimal scenario for stocks here. The notion that the economy might be on the verge of accelerating too fast/ running too hot, has dialed UP the inflation-risk-premium for the stock and bond markets. The hot trajectory for the economy has kept pressure on the Fed to continue the path higher in interest rates. Thus far, the seven quarter-point hikes the Fed has made to the benchmark overnight lending bank rate has NOT choked off economic momentum. But it has, finally, started to get market rates moving. The ten-year government bond yield is near 3.25%, the highest in seven years. And stocks haven’t liked this 3%+ level on rates. And that has a lot to do with what it does to consumer rates, specifically mortgages. As you can see in the chart below, we now have 30-year mortgages running north of 5% for the first time since 2010. |
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| This move in rates has slowed down the housing market. And this is an example of how this path of hotter growth and an aggressively normalizing Fed has been tracking toward growth killing interest rate levels.
Perhaps some gridlock in Washington will slow the speed at which both are adjusting and allow for some time for the economy to sustain at this 3% growth level. Join me here to get all of my in-depth analysis on the big picture, and to get access to my carefully curated list of “stocks to buy” now. |