NYSE and the status of world markets

[DaveTrade]

Are Earnings Forming a Major "Bull Trap?"

Bulls received several “green lights” to double down on their bets this morning after better-than-expected earnings reports continued to roll in. Johnson & Johnson (NYSE: JNJ), and Walmart (NYSE: WMT) beat their Q3 EPS (earnings per share) estimates with ease.

After the market closes later this afternoon, Netflix (NASDAQ: NFLX) and United Airlines (NASDAQ: UAL) are set to report as well. If the current trend continues, both companies should also please shareholders with their own quarterly results.

But investors shouldn’t necessarily be surprised by how Q3 earnings have looked thus far. Banks – companies that weren’t hit by surging supplier costs, a clogged supply chain, or stagnating demand – stole the show last week after revealing “blowout” quarters, thanks to impressive trading revenues.

Major US manufacturers have yet to report earnings. When they do, sentiment could slip in response if investors don’t like what they hear.

“The financials got earnings season off to another strong start, but let’s be honest, Covid and supply chain issues aren’t going to impact this group,” noted LPL Financial chief market strategist Ryan Detrick.

“Now it gets very interesting to see what other industries will have to say about the health of the economic recovery.”

In other words, the sectors that were supposed to prosper (and have already reported earnings) in Q3 did just that. Now, it’s a question of whether the rest of the market followed suit.

"We're dealing with supply chain challenges because of the unique situation that we're in right now, where we've unleashed a lot of demand before businesses were really ready for it. That may persist for some time, drive volatility, raise some concerns," explained Brian Levitt, Invesco global market strategist of North America.

"But ultimately I think the supply-demand imbalances will moderate, enabling this cycle to move on further. What you want to hear from businesses are those that continue to believe that demand is going to be strong, and continue to believe that they have some ability to work through the supply challenges and pass on some of those costs to consumers.

Levitt continued, adding:

"It's not a rising tide that lifts all boats type of environment. It’s an economy that’s likely to slow some in here, and pricing pressures are going to be with us a bit [...] Those businesses that can pass on these costs are going to be the winners."

It’s something we’ve discussed before – the fact that some companies will be able to pass rising input costs on to consumers while others will simply try to “eat” them instead, wounding shareholders in the process.

With rates and inflation both expected to rise from here, the companies in the top right quadrant should outperform in that regard. That includes banks (which have already done very well), energy, and transportation. Opposite those sectors are real estate, utilities, and household products.

So, once more companies from the bottom left quadrant start to report, expect sentiment to sour. Most major real estate investment trusts (REITs) will report next week at the earliest. Procter & Gamble (NYSE: PG), a household and personal products corporation, reported this morning, offering shareholders disappointing forward guidance. PG shares slumped in response.

If more companies follow PG's lead, the conversation surrounding the ongoing post-Covid recovery could change dramatically. But, as usual, until it starts to show up on the charts, there’s no reason to bail on long positions just yet.

 

[DaveTrade]

Some food for thought;

https://thesteadytrader.com/outlook...ould-already-be-underway-video-market-update/

 

[DaveTrade]

Update on TSM;

The market has reached a minor top in the middle of the gap but still has good upside momentum so I'll be staying long for now.

 

[DaveTrade]

Some food for thought;

https://thesteadytrader.com/outlook...ould-already-be-underway-video-market-update/

Still hungry, have a bit more;

This ETF could be ripe for the much anticipated breakout - The Steady Trader

After trotting sideways for most of 2021, small capitalization stocks as represented by the IWM etf increasingly look ripe for the breakout. I have a couple of price targets too. Watch the video.

thesteadytrader.com

 

[DaveTrade]

Are Stocks Headed for New Highs Again?

Stocks opened lower today, taking a break from their recent (and rapid) ascent. The Dow, S&P, and Nasdaq Composite all fell slightly.

And though that might seem disappointing, it’s the kind of thing that usually happens after the S&P rises 4% in just 5 trading sessions. What’s more, it won't be the end of the rally if stocks finish down this afternoon.

The market can’t go up unabated forever, after all. Eventually, there will be (usually small) pullbacks even in a runaway short-term rally like we just experienced.

Is today’s turbulence the first sign of trouble? It certainly could be, especially after the Dow notched a new record high in the trading session prior. But it also may be a small "hiccup" en route to even higher highs.

“The Dow traded to a new all-time high today, again showing the resilience of dip buyers and the importance of cyclical companies in the stock market rally,” said Independent Advisor Alliance’s Chris Zaccarelli yesterday.

Better-than-expected earnings have pitched stocks higher over the last week and a half. Of the 70 S&P 500 companies that reported earnings thus far, 86% beat analyst estimates. Tesla (NASDAQ: TSLA) joined that group last evening when it beat on both earnings per share ($1.86 reported vs. $1.59 expected) and revenue ($13.76 billion reported vs. $13.63 billion expected). The company saw its sales grow last quarter, too, which most other automakers couldn’t achieve amid semiconductor and supply chain constraints.

But in spite of the strong quarterly results, many investors remain concerned about inflation. The recent Consumer Price Index (CPI) and Producer Price Index (PPI) readings showed “stickier” price increases than most analysts had hoped for this late into the year. Margins for manufacturers slimmed as well, which should eventually show up in earnings for certain types of companies.

Deutsche Bank’s head of thematic research, Jim Reid, noted that margins still seem unchanged for the companies that have already reported.

“There are no signs of widespread erosions of margins at the moment,” Reid said.

“Perhaps there is so much money sloshing about that for now prices are broadly being passed on.”

That’s going to change when the Fed finally starts to taper its asset purchases. Wall Street believes the taper will actually begin sometime in November.

And if it does, that may signal the beginning of the end for the bull market. That’s not to say stocks will immediately streak lower when the taper is announced.

They probably won’t.

But in starting the taper, the Fed will get the ball rolling on a shift in monetary policy that culminates in 2022 with a series of rate hikes – the bigger hazard that some traders (of both the institutional and retail variety) already have their eyes on.

"Both the fiscal stimulus and monetary stimulus has been driving markets really since the ricochet off the bottom of COVID," said Michael Vogelzang, chief investment officer for Captrust.

"What we're looking at now is, the easy work is done. The Fed is beginning to taper shortly, we expect. And in order to progress here [...] we're going to have to see stronger earnings growth, and continued strong earnings growth."

When rates rise and bond purchases fall, far less money will be “sloshing around” to boost prices. Which, over the last 17 months, has helped fuel the market’s epic post-Covid run-up right alongside consistently better-than-expected earnings seasons.

 

[DaveTrade]

Trump's Newest Project Just "Broke the Market"

Stocks opened flat this morning as social media companies dragged the Nasdaq Composite lower. Intel (NASDAQ: INTC) didn’t help matters much either after reporting a major earnings “miss.” Intel leadership cited the ongoing chip shortage as Q3’s most significant hurdle, which the semiconductor manufacturer blamed for its worse-than-expected revenues. INTC shares sunk more than 10% in response.

Overall, though, tech companies have had a great earnings seasons along with the rest of the market. 84% of S&P companies have beaten their respective EPS (earnings per share) estimates thus far.

That’s why the S&P was able to touch a new all-time high earlier today as investors digested the latest batch of upside quarterly surprises.

“In a quarter where we thought things would slow down and there was concern about what profit margins were going to look like, these companies are still doing well,” explained Crossmark Global Investments’ Victoria Fernandez.

Better-than-expected weekly jobless claims tilted sentiment positive, too. First-time unemployment filings clocked-in at 290,000 last week, hitting a new pandemic low. Economists predicted 300,000 jobless claims by comparison.

"Beyond weekly fluctuations, filings are likely to trend down over coming weeks, gradually moving closer to the pre-pandemic level," said Rubeela Farooqi, chief U.S. economist with High Frequency Economics.

"Businesses are reporting severe labor shortages and are likely unwilling to reduce their workforce."

But the biggest story of the day had to do with former president Donald Trump’s newest project – a social media platform designed to protect conservative voices online. Trump is using a special purpose acquisition company (SPAC) to take the platform, called TRUTH Social, public. The name of the SPAC is Digital World Acquisition Corp. and trades under the symbol DWAC.

This morning, trading on DWAC was halted after the SPAC surged for a massive 190% gain. It also jumped over 350% higher on Thursday, closing at $35.54.

SPACs, which became a new fad within the last few years, raise money via public markets with the intent of merging with a private company in order to take that private company public within two years.

When SPACs open for trading, investors typically have no clue as to what the company will eventually become. In DWAC’s case, however, traders quickly learned what the SPAC was being used for. Speculators flocked to it, causing a massive run-up in price.

“This was a history-making deal,” said Accelerate Funds CEO Julian Klymochko.

“I believe it may reinvigorate the SPAC market and bring back retail interest in a big way,” Klymochko added.

"It showcases the tremendous risk-reward dynamic of pre-deal SPACs. Very limited downside with tremendous upside. Perhaps the best risk-reward profile of any security out there.”

After bursting onto the scene, interest in SPACs cooled dramatically following several high-profile misfires. Now, though, “SPAC-mania” may be returning thanks to DWAC’s incredible two-day rally – something that could send other, less notable SPACs into the stratosphere in the coming weeks.

Even if they're completely unrelated to Trump's TRUTH Social.

 

[DaveTrade]

Update on TSM;

View attachment 131711

The market has reached a minor top in the middle of the gap but still has good upside momentum so I'll be staying long for now.

Follow up on TSM;

At the time of my previous post (above) I had good momentum, I thought it would be enough to push through the minor-top-in-the-gap resistance zone but I lost momentum so I'm out. The market always knows best. I still think that Semiconductors will be a good market long term but right now it's having a rest and my trade plan on this trade was short term.

 

[DaveTrade]

One of the major topics of concern for the US markets is Interest Rates. The talk around this topic is that interest rates have already been rising and everyone wants to know if and when they will really start to move higher. In this post I’m going to attempt to shed some light on this topic. In order to do this I need to use one of my indicators.

A bit of background; for years I’ve been programming my own indicators, I’ve done this to try and get a simpler, easier to understand visual indication of the markets. I’ve tried to view a market from a couple of different angles as a way of confirming in my mind what I see in the price action. So I’ll be using one of these home grown indicators in this post.

The US 10 Year Bond Yield is a representation of interest rates, below is a nine-day chart showing a low in momentum on the 13/5/20 (lower indicator). The shorter term indicator at the top sometimes gives a heads-up to what the longer term momentum will do next, as can be seen with the divergence in this shorter term indicator just prior to the 13/5/20. In the price action a cup-and-handle pattern can clearly be seen, this is known to be a very bullish pattern, so when price breaks out above the handle a quick run can be expected.

Below is a Daily chart of just the handle of the cup-and-handle pattern. It shows the low in momentum on the 20/7/21 (lower indicator), and the lower indicator also shows the gain in momentum as price moves up towards the breakout zone at the top of the handle. The top indicator however is showing that momentum has been losing strength since the 29/9/21 and is therefore coming into the top resistance zone (breakout zone) with fading momentum, making me think that this resistance zone is likely to turn the market back down, at least temporarily, giving a bit more time before interest rates take off to the upside.

 

[DaveTrade]

Is Hyperinflation Coming?

Stocks traded slightly higher this morning as earnings season continued. Up next are tech earnings, which many analysts expect could reveal blowout quarters following Netflix’s impressive Q3 “beat.”

“Rising tide of earnings is lifting all the boats and adding fuel to the bull market fire,” said Commonwealth Financial Network’s Anu Gaggar.

“The [Q3] earnings season is off to a strong start despite concerns about supply bottlenecks and labor shortages.”

Facebook (NASDAQ: FB), Google-parent Alphabet (NASDAQ: GOOG), Microsoft (NASDAQ: MSFT), Amazon (NASDAQ: AMZN), and Apple (NASDAQ: AAPL) will release earnings this week alongside a large chunk of Dow companies.

In short, it’s “showtime.” And the market could absolutely erupt in response if earnings skew positive once more. Thus far, 84% of the S&P companies that have reported managed to exceed their EPS (earnings per share) estimates. That bodes well for this week’s batch of earnings as the S&P lingers near its all-time highs.

But the bigger story this morning was the market’s reaction to Sunday’s debate between Treasury Secretary Janet Yellen and Twitter (NASDAQ: TWTR) CEO Jack Dorsey.

“Hyperinflation is going to change everything. It’s happening,” Dorsey tweeted.

“It will happen in the US soon, and so the world.”

To which Yellen responded:

“I don’t think we’re about to lose control of inflation. On a 12-month basis, the inflation rate will remain high into next year because of what’s already happened. But I expect improvement by the middle to end of next year […] second half of next year.”

Yellen continued, explaining that supply chain issues and the ongoing labor shortage in the US will eventually end.

“As we make further progress on the pandemic, I expect these bottlenecks to subside. Americans will return to the labor force as conditions improve,” she said.

Major cargo carriers don’t see these issues resolving any time soon, though, and a group representing several air freight companies recently issued a warning that Biden’s December 8th vaccine mandate deadline could trigger utter supply chain chaos.

September’s Consumer Price Index (CPI) reading showed that consumer price inflation is near a 30-year high, too. The Producer Price Index (PPI), meanwhile, showed that producer prices are rising faster than ever before on an annual basis.

Yellen thinks inflation will slow.

But Graeme Pitkethly, Unilever’s CFO, recently said that “we expect inflation could be higher next year than this year.” To be fair, Yellen claimed that inflation should improve in the second half of next year, which lines up with Pitkethly's prediction.

That means, however, it may even get worse until then.

Procter & Gamble (NYSE: PG) has already started to increase prices on some of its products.

“We announced price increases to retailers in the US on oral care, skin care, and grooming,” said CFO Andre Schulten in a conference call. “It’s item by item.”

It seems most analysts and industry leaders agree that high inflation will be sticking around until at least Q3 2022. Even Yellen admitted it.

In response, traders may want to load up on inflation hedges like precious metals, precious metal-related stocks, and, according to billionaire investor Paul Tudor Jones:

Bitcoin.

“Clearly, there’s a place for crypto. Clearly, it’s winning the race against gold at the moment,” he said last Wednesday. Jones also said that he owns some Bitcoin and sees it as a good inflation hedge.

With Bitcoin trading near its all-time high, that may be a bit of a tough sell for anyone who doesn’t already own some. But given the current economic conditions, the stage is set for Bitcoin to make another, larger run.

Especially now that tech CEOs aren’t just predicting higher inflation, but hyperinflation for the near future.

 

[DaveTrade]

Some Stocks Could Be "Un-Buyable" Next Quarter

More earnings rolled in this morning as stocks continued their climb to new heights. Facebook (NASDAQ: FB) added to Big Tech’s win-streak by beating its EPS (earnings per share) estimate ($3.22 reported vs. $3.19 expected). FB shares jumped higher at the open in response.

“Earnings season is off to another great start, but now the big test is will the Big Tech names step up?” asked Ryan Detrick, chief financial strategist at LPL Financial.

“With stocks at all-time highs, the bar is indeed quite high and tech will need to impress to help justify stocks at current levels.”

Most other companies that reported today – Hasbro (NASDAQ: HAS), 3M (NYSE: MMM), United Parcel Service (NYSE: UPS), and General Electric (NYSE: GE) – surpassed EPS expectations, too. And although MMM beat its EPS estimate, the stock sunk this morning. So too did Corning (NYSE: GLW), the glass and specialty materials maker, after falling short of expectations.

Polaris (NYSE: PII) shares also tumbled following a disappointing earnings release. The company met its EPS expectations but slashed its full-year outlook due to lingering supply chain issues.

And while it’s true that most S&P companies are still beating their EPS estimates, a clear trend has developed over the last quarter:

Manufacturers were unable to overcome supply chain problems and slimmed margins. What’s more, those struggles should continue into Q4 and beyond.

“Even though this has been a good earnings season in aggregate we are starting to see more companies with supply backlogs, hiring difficulties, and rising input prices that are eating into profits,” wrote Deutsche Bank analysts.

But so long as the majority of the S&P continues to impress, the market could easily rise further as it heads into November following an already strong month.

"The S&P 500 Index has gained more than 20% so far this year, making more than 50 record highs along the way. Certainly nobody should be upset with that return if that was all 2021 brought us," Detrick said.

"However, we see signs that there could be more gains to come in the final two months of the year. Seasonal tailwinds, improving market internals, and clear signs of a peak in the Delta variant all provide potential fuel for equities heading into year-end, and we maintain our overweight equities recommendation as a result."

That’s right, bulls. You have the “green light” to keep buying.

And it makes sense, honestly. The Fed’s taper hasn’t started yet and most S&P companies are still reporting robust earnings. Once the taper starts and earnings get whacked by the economy’s major hurdles, that’s going to change.

But those are December/early 2022 problems. For now, the going is good, so the bulls will remain in control.

Even though everyone knows the "good times" will eventually end, likely around the same moment the first rate hike hits and after the Fed’s taper has already throttled liquidity by a significant amount.

 

[DaveTrade]

Are Stocks Going to Rally Again?

Stocks traded higher this morning after President Biden announced that he struck a deal with Senate Democrats who had initially opposed his new bill. Worth $1.75 trillion, the bill was created to bolster “social spending” and to target climate change.

But its biggest changes have nothing to do with either of those two things. Biden wants to raise the minimum corporate tax rate, limit business losses, tighten international corporate tax rules, and expand the 3.8% investment tax.

In other words:

The bill is really taking aim at taxing big businesses, possibly to fund the White House’s aggressive spending plans.

Biden went over the general concepts of the bill in a press conference today but didn’t provide as much detail as analysts had hoped.

“I know we have a historic economic framework,” he said.

“I’ll have more to say after I return from the critical meetings in Europe this week.”

In order to reach an agreement with Democrat holdout Sen. Joe Manchin, a federal paid family and medical leave system was removed from the bill. However, negotiations aren’t over just yet. The bill could still change dramatically in the meantime before it’s finalized.

And if Congressional progressives get their way, it may increase in size. Others aren’t necessarily happy with its current structure, either.

“It needs to be improved,” remarked Bernie Sanders.

“What we have to do now is, first of all, make sure that the before the [infrastructure bill] vote takes place in the House, to make sure that there is a very explicit legislative language” he continued.

Manchin wasn’t pleased with the bill's framework, either.

“It’s hands of the House,” he said.

“I’ve been dealing in good faith. I will continue to deal in good faith.”

Regardless, it may be only a matter of time until the $1.75 trillion in spending arrives now that Manchin and Sen. Kyrsten Sinema are seemingly on board.

That’s good news for bulls, especially after the Commerce Department released its quarterly US growth report this morning. US gross domestic product (GDP) grew at an annualized pace of just 2.0% last quarter, falling well short of the 2.8% consensus estimate due to reduced consumer spending and residential investment.

It was also the slowest quarterly post-pandemic gain for US GDP.

“Overall, this is a big disappointment given that the consensus expectation at the start of the quarter in July was for a 7.0% gain and even our own bearish 3.5% forecast proved to be too optimistic,” wrote Capital Economics chief US economist Paul Ashworth.

“We expect something of a rebound in the final quarter of this year — if only because motor vehicles won’t be such a drag and any negative impact from Delta should be reversed.”

If Covid cases continue to trend lower, consumer spending could potentially increase. But that will only happen if the supply chain issues are fixed relatively soon.

But many analysts, economists, and industry heads believe that supply chain struggles will linger well into next year. And they may even get worse as a vaccine mandate deadline approaches.

So, even though Q3 earnings have looked good, investors need to understand that the post-Covid recovery has slowed dramatically. The market may need to adjust its expectations as a result.

Because, eventually, the major quarterly earnings “beats” will end. And when they do, stocks with sky-high valuations are going to look a little pricy, no matter how much the White House intends to spend via new bills.

 

[DaveTrade]

Could Kill Bull Market

Stocks traded slightly lower today after earnings from two Big Tech companies disappointed investors. Apple (NASDAQ: AAPL) and Amazon (NASDAQ: AMZN) both missed their revenue estimates this morning while offering underwhelming guidance for Q4.

Apple said that supply chain problems hurt iPhone, iPad, and Mac sales in Q3. And with the holidays approaching, those issues are unlikely to be resolved any time soon. It was the company’s first revenue miss since May 2017. AAPL shares unsurprisingly fell over 3% in response.

Amazon provided guidance similar to Apple’s, citing supply chain problems as well. The e-commerce giant also missed its earnings estimate, much to the dismay of AMZN shareholders. AMZN dropped as much as 5% on the day before paring back much of its initial losses.

And while that’s certainly not good news for the tech sector, the arguably more important story this morning didn’t have to do with earnings at all. The Commerce Department reported today that the personal consumption expenditures price index – the Fed’s favorite inflation gauge – climbed 0.3% higher in September, raising the year-over-year inflation gain to 4.4%.

That’s a new 30-year high and evidence that inflation has been anything but “transitory.” Still, Treasury Secretary Janet Yellen believes inflation will recede next year.

“Year-over-year inflation remains high and will for some time simply because of what’s already happened in the first months of the year,” Yellen said in a CNBC interview this morning.

“But monthly rates I believe will come down in the second half of the year. I think we’ll see a return to levels close to 2%.”

It’s more or less what Yellen already said on Monday after Twitter (NASDAQ: TWTR) CEO Jack Dorsey predicted an impending period of hyperinflation.

“Hyperinflation is going to change everything. It’s happening,” Dorsey tweeted.

“It will happen in the US soon, and so the world.”

To which Yellen responded:

“I don’t think we’re about to lose control of inflation. On a 12-month basis, the inflation rate will remain high into next year because of what’s already happened. But I expect improvement by the middle to end of next year […] second half of next year.”

Technically, anything can be considered transitory on a long enough timeline. Is the US economy going to be able to handle heightened inflation for another year?

What’s also left out of this conversation is that the past price hikes don’t simply go away when inflation falls. The price gains of the last year and a half are likely permanent.

Wage growth, meanwhile, continued to lag inflation in September. The Commerce Department reported that income fell 1% month-over-month (MoM), greatly surpassing the -0.3% MoM estimate.

In short, the Fed’s already difficult situation has only grown more complex. Fed Chairman Jerome Powell undoubtedly needs to raise rates, and when he does, there could be hell to pay.

The Bank of Canada said Wednesday that it would hike rates sooner than expected due to persistent inflation worries. It also ended quantitative easing (QE) by ceasing new asset purchases.

Of course, the Bank of Canada is far less important than the Federal Reserve, which controls the dollar, a reserve currency.

That does not, however, make the Bank of Canada’s decision to kill QE any less correct. Yes, the Bank of Canada certainly should have done it sooner.

But at the end of the day, they’ll have beat the Fed to the punch by several months (if not years), all while the Fed struggles to keep the “everything bubble” from violently bursting in response to what’s looking like a major policy error.

 

[DaveTrade]

Will Inflation Keep Rising?

Stocks traded flat this morning after the market enjoyed one of its best months on record. The October rally took the S&P over 7% higher as of Friday's close. It was the largest monthly gain for the index since November of last year.

And now, toward the end of a mostly better-than-expected earnings season, bulls are looking for new reasons to keep buying.

Wall Street’s biggest bull, without a shadow of a doubt, has been Fundstrat’s Tom Lee, the same man responsible for correctly predicting Bitcoin’s 2017 peak of almost $20,000.

Lee’s been wrong about other predictions since then. But he was right when he called new highs for the market in anticipation of a strong earnings season several weeks ago.

Lee sees even stronger revenues coming down the pipe next year thanks to recent shifts in health trends.

“In our view, the key story arc driving equities is the strengthening global recovery,” Lee wrote in a note to clients.

“COVID-19 trends are improving, but with vaccinations and boosters, the improvement in healthcare risk could materially accelerate in 2022.”

Inflation, however, could limit the economic outlook significantly if it continues to rise. The Commerce Department reported Friday that the Fed’s favorite inflation measure – the personal consumption expenditures price index – hit a 30-year high in September.

The Federal Reserve will hold a meeting this week that starts Tuesday and ends Wednesday. What Fed Chairman Jerome Powell has to say about inflation in his post-meeting remarks could sway sentiment greatly for the remainder of the year.

“The Fed is part of a global move to remove accommodation, and the market drives right past that,” said Bleakley Advisory Group CIO Peter Boockvar, referencing the Fed’s coming taper of asset purchases.

“In a way, the stock market is playing a game of chicken, with this inflation move and interest rates and the response from central banks.”

Up until now, Powell’s insisted that inflation has been merely “transitory,” or temporary. Treasury Secretary Janet Yellen has said the same thing when given the chance.

But Yellen also mentioned last week that inflation was “more persistent” than expected. Worse yet, she doesn’t think inflation will come down until the second half of 2022.

That doesn’t seem all that transitory, does it? And what if her prediction is wrong? Powell and Yellen both underestimated the rate of inflation once already.

It could easily happen again.

When an overabundance of cash “chases” too few goods, inflation always arises. The Fed will try to reduce the amount of cash in the economy by tapering.

The supply of goods, on the other hand, really needs to start surging soon for inflation to drop. Lingering supply chain problems won’t let that happen, though, and a coming vaccine mandate could make the issue even worse.

Rumors of walk-outs at major airlines could be indicative of another supply chain-related obstacle. Southwest had to cancel many of its flights last month. The company’s CEO claimed a staff “sick-out” wasn’t the cause. American Airlines canceled roughly 2,000 flights over the last weekend, too. Much like Southwest, American’s CEO blamed the cancelations on weather and a "staffing shortage," not unruly pilots.

In reality, though, something more organized among plane crews may be taking place. Other, less-critical industries have experienced similar walk-outs related to vaccine requirements. First-responders in major cities have threatened to unofficially strike as well.

Simply put, the backdrop for a surge in supply over the next few months does not exist. And let’s not forget that the Fed won’t be shutting off its asset purchases entirely when it finally decides to taper. Powell’s likely to only throttle those asset purchases slightly at first.

That means high inflation won't go away any time soon. Maybe not even until 2023 (or later) if experts within the shipping industry are accurate in predicting multi-year logjams at the world’s major ports, no matter how much Powell or Yellen insist that spiking prices are just a temporary hurdle prior to the next great economic boom.

 

[DaveTrade]

Support/Resistance levels on 10yr Bond Yield

 

[DaveTrade]

The Vaccine Mandate Is a "Ticking Time Bomb" for Stocks

The market opened significantly higher this morning before giving up most of its early gains. Yesterday, the Fed officially announced an asset purchase taper while intentionally avoiding any discussion on rates.

As a result, it seems the Fed will join other central banks in holding rates lower for the short term. The Bank of England said this morning that it too would keep rates unchanged.

In response, stocks rallied.

“The Fed’s tapering announcement removes a minor, but overhanging worry across markets, as investors had been waiting for this moment for months, and it reinforces the view that the economic recovery has a long runway, albeit with a low rate of growth,” explained Sanders Morris Harris chairman George Ball.

“The Fed’s tapering announcement is a signal of economic strength, which is good for corporate earnings and markets.”

What won’t be good, however, is if inflation continues to surge. The Fed’s favorite inflation gauge, the personal consumption expenditures price index, hit a 30-year high in September. Both Fed Chairman Jerome Powell and Treasury Secretary Janet Yellen admitted that inflation is running hotter than expected.

Yellen even went so far as to say that she doesn’t think inflation will subside until the second half of next year.

The US economy is also dealing with major supply chain issues, which experts within the shipping and trucking industries believe will persist until 2023.

What’s more, the supply chain gridlock could get worse with a vaccine mandate deadline looming on January 4th.

That’s right, OSHA finally released the details of President Biden’s vaccine mandate this morning. Companies with over 100 employees have until the new year to get their workers vaccinated or face hefty fines. Individual violations will cost businesses $13,653. Willful, company-wide noncompliance carries a fine of $136,532.

That poses a serious problem that would have been bad enough if the US was only dealing with supply chain backups. But a labor shortage has taken hold as well.

Investors already witnessed a number of walkouts from workers within key industries, primarily in rural areas. Major airlines famously canceled flights due to large-scale “sick-outs” from employees, which the mainstream media refused to acknowledge.

Strikes of this nature will only snowball as employers pressure workers to get vaccinated. The White House claims that the Covid vaccine is highly popular everywhere, but that’s simply not the case outside of major urban areas. In the past, rural communities relied on large cities to survive.

That relationship has completely flipped over the last 50 years. Rural-based workers and industries are now critical components of the US economy.

And though the coming vaccine mandate is only targeting large companies with its January 4th deadline, OSHA will consider expanding its net to include smaller businesses, too. Many of which are, again, located in vaccine-averse areas.

What's going to happen when a significant chunk of the population decides to not show up for work?

So, despite the Fed’s continued dovish policy, the US economy is still on the path to a major slowdown. Sky-high inflation and a more dysfunctional supply chain await investors in 2022.

No matter how many times Powell, Yellen, and others insist that everything is going just as planned in the rapidly decelerating, post-Covid economic recovery.

 

[DaveTrade]

Look out for a "November Crash"

Stocks fell this morning opposite Bitcoin, which touched a new all-time high above $68,000. Volatility’s up, too, as investors weigh whether to “buy the dip.”

It’s not a big dip, relatively speaking. At least, not yet.

But the market has been very streaky over the last two months. September saw the S&P plummet roughly 6% from its all-time high in a matter of weeks. Then, in October, the S&P logged one of its best months ever. When stocks hit a rough patch, they spike lower. When a rally follows, they rise just as quickly.

In fact, the index hasn’t closed lower on the day in nine trading sessions. There’s no doubt that bulls were in control last month. But today, momentum has shifted significantly toward bears for the first time in a long while.

And it may only get worse following the latest inflation data, released this morning.

The Producer Price Index (PPI) jumped 0.6% higher month-over-month (MoM) in October, matching the consensus estimate. Year-over-year (YoY), the PPI was up 8.6% to an 11-year high while also falling in line with analyst expectations.

“Bottom line, while today’s data was as expected, the numbers are certainly eye-opening in terms of the pace of gains,” explained Bleakley Advisory Group CIO Peter Boockvar.

The Labor Department’s report showed that energy and transportation costs surged last month, rising 4.8% and 1.7% MoM, respectively. It’s a trend that continues to pump headline PPI higher and one that has lasted far longer than the Fed expected.

"The acceleration in US inflation may not fade as quickly as previously thought, particularly for businesses because of the global supply-chain issues," said Moody’s Analytics senior economist Ryan Sweet.

"Elevated inflation is turning up the heat on the Federal Reserve but they haven't shown signs of buckling as they will stomach higher inflation to get the labor market back to full employment quickly."

Will “full employment” ever be reached, though? The Fed’s goal was to hit 3.5% unemployment, which is what the US was at immediately before the pandemic started. In October, unemployment fell to 4.6% as the labor recovery slowed.

It could be years before 3.5% unemployment is achieved, if ever. And if the economy does reach “full employment,” that probably means inflation will have climbed even higher.

To bring inflation lower, the Fed will need to raise rates substantially. Or, the US economy will have to slow down.

Either solution would whack stocks for major losses.

The third alternative is to let inflation run rampant, decimating America’s purchasing power while those invested in the market watch their portfolios rise. But the gains won’t be real. The indexes will simply attempt to match the rate of inflation.

And that won’t be good for anyone. Not even the 1%.

The October Consumer Price Index (CPI) comes out tomorrow morning and over the last few months, the gap between the CPI and PPI has widened in historic fashion.

At some point, that gap needs to close. The result will be either slimmed margins for producers or massive price increases for consumers.

Bottom line: things don’t look good, regardless of which side of the transaction you're on. Today’s stock market losses may indicate that investors are starting to realize that, especially as far greener pastures await them in the land of digital currencies, where Bitcoin and Ethereum continue to make new record highs.

 

[DaveTrade]

October Inflation Shocks Biden, Investors

Stocks down. Inflation, gold, and Bitcoin up.

The October Consumer Price Index (CPI) was released this morning, and in the Labor Department’s report, investors learned that consumer prices rose faster than expected last month. Headline CPI jumped +0.9% month-over-month (MoM), bringing the yearly inflation surge to +6.2% vs. 5.9% expected. That’s the highest measured year-over-year (YoY) headline CPI increase since 1982.

Core CPI (which excludes energy and food prices) also advanced last month, rising to +4.6% YoY, hitting a 20-year high.

“Wednesday’s Consumer Price Index showed another month of inflation data well above the Federal Reserve’s inflation target, primarily due to continued supply chain issues and labor shortages. If inflation doesn’t subside, the Federal Reserve may need to taper at a more substantial rate and hike interest rates, which could hurt stocks and bonds,” remarked Nancy Davis, founder of Quadratic Capital Management.

The most concerning portion of October’s inflation print, however, was how inflation grew in non-reopening-sensitive categories.

​

This happened while reopening-sensitive components saw far less inflation than earlier in the year. That likely means “stickier” inflation has arrived as the US transitions to a post-pandemic economy.

“Inflation is clearly getting worse before it gets better, while the significant rise in shelter prices is adding to concerning evidence of a broadening in inflation pressures,” explained Principal Global Investors chief strategist Seema Shah.

Food, vehicle, shelter, and energy were the largest contributing categories to October’s headline CPI “beat” (or “miss,” depending on how you look at it). Alcohol and airline fares, meanwhile, supposedly fell in price – something that’s probably going to be revised higher in the future.

In response to the CPI spike, the Fed’s likely to stick to its guns and insist that inflation remains “transitory.” President Biden, on the other hand, has grown tired of watching inflation (and energy prices, in particular) tick higher every month.

“On inflation, today’s report shows an increase over last month. Inflation hurts [Americans'] pocketbooks, and reversing this trend is a top priority for me. The largest share of the increase in prices in this report is due to rising energy costs—and in the few days since the data for this report were collected, the price of natural gas has fallen,” Biden said via a statement on whitehouse.gov.

“I have directed my National Economic Council to pursue means to try to further reduce these costs, and have asked the Federal Trade Commission to strike back at any market manipulation or price gouging in this sector.”

Unsurprisingly, energy stocks fell shortly thereafter. But Bitcoin and gold did not. And neither did the dollar.

Instead, all three climbed higher as an interesting cocktail of hyperinflation and hawkish monetary policy fears tilted sentiment.

It’s been a long time since gold and the dollar both rose in tandem. Now, though, following October’s CPI print, that’s going to change.

And investors need to come up with a trading plan to address that. Buying precious metals may no longer simply be a defensive play. Loading up on Bitcoin, a more speculative asset, might also make sense.

The American regime has completely lost control of inflation this year, and assets that can harness this trend could outperform as a result.

Even with a series of rate hikes likely coming sooner than expected.

 

[DaveTrade]

Why the Next Crash Will Be "Worse than Covid"

Stocks traded slightly higher this morning, rebounding after yesterday’s plunge. The Nasdaq Composite was up opposite the Dow, which fell at the open.

All in all, it was a good morning session for tech. But inflation – not the intraday tech rally – continued to dominate the market’s narrative following yesterday’s hotter-than-expected October Consumer Price Index (CPI) print.

“Inflation remains stubbornly high, to the surprise of many that expected prices to come back to earth sooner,” explained LPL Financial chief market strategist Ryan Detrick.

“The truth is you can’t shut down a $20 trillion economy and not feel some bumps as it restarts, but we are hopeful the supply chain issues will resolve over the coming quarters and inflation should calm down as well.”

Fed Chairman Jerome Powell and Treasury Secretary Janet Yellen were hopeful for the same thing six months ago.

But high inflation and supply chain issues have persisted. Yellen now thinks that both could remain until the second half of next year.

This prediction was made before the most recent CPI data, however. Yellen’s timeline may have changed dramatically in light of the October inflation surge.

"This is certainly telling us, I think, that price pressures are more persistent. They are broader. They are not just narrowly focused on those categories, whether it's autos and the supply-constrained items. And it's going to last longer than expected," said Matthew Luzzetti, Deutsche Bank’s chief U.S. economist.

He continued, adding:

"We do think that the Fed is going to have to raise rates next year. They've signaled that they're going to taper through the middle of the year, and that's our baseline at this point. But if you continue to see price pressures like this over the coming months and more persistent, it may cause them to have to act earlier than expected."

The Fed’s taper has already begun to the tune of $15 billion per month, reducing the central bank’s $120 billion in monthly asset purchases. And while that’s certainly a whole lot of money, it’s not necessarily all that hawkish, either.

A rate hike, on the other hand, would be a different story.

Don’t forget that when the going was good back in late 2018, Powell tried to raise rates.

In response, the market sunk over 20% from peak to trough. By comparison, the Covid pandemic spurred on a 35% correction.

At the time, economists were concerned about signs of “economic softening” and argued that it would be unwise to raise the federal funds rate above 2.00%.

The truth of the matter, though, is that there was never going to be an ideal moment to get hawkish after almost a decade of uber-dovishness and quantitative easing (QE). When rates went up, stocks were going to fall regardless.

But Powell deserves a ton of credit for attempting to induce quantitative tightening (QT), the polar opposite of QE, with the economy in good shape relative to where it was from 2008-2016.

QE has often been compared to a roach motel. It’s been theorized that once your economy “checks in,” it can’t “check out.” Powell more or less proved that hypothesis to be true with his 2018 rate hikes. By July 2019, the Fed began to reduce rates once more, culminating with a targeted federal funds rate of 0.00%-0.25% on March 15, 2020, in response to the Covid pandemic.

To summarize:

The last time the Fed raised rates significantly, the economy was doing far better than it is currently. Inflation was not of any major concern. Supply chains were running smoothly, and shipping containers weren’t piling up outside the world’s major ports.

And yet the market fell by 20% in response to Powell’s September 2018 rate hike.

What’s going to happen when rates go up next time, and while the economy is caught in stagflationary limbo?

Bulls had better figure that out soon. Because before too long, Powell could increase rates again.

Resulting in a potentially even worse correction than the one sparked by Covid.

 

[DaveTrade]

Stocks are at a "Make or Break" Moment

Stocks traded higher this morning after closing flat in the session prior. The Dow, Nasdaq Composite, and S&P all enjoyed moderate gains shortly before noon.

The question now is whether this is the start of a bullish continuation, or simply a “dead cat bounce.”

The S&P, as represented by the SPY, is at a crossroads. The index closed outside of its bullish October trend lows (yellow trendline) two days ago. Then, today, it jumped above its minor bearish trend highs (purple trendline).

If the SPY falls below the low of Wednesday’s bearish breakout, a correction would likely be confirmed. Alternatively, a rise above today’s high (currently $467.22) would confirm that a rally could soon follow thereafter.

Keep in mind also that November’s options expiration (OpEx) date is approaching on the 19th. In June, July, August, and September, the market plunged shortly before each month's respective expiration dates.

October was the exception.

And with single options trading activity at an all-time high, next Friday’s OpEx could be yet another explosive one.

Especially considering how quickly the market climbed in October.

"We've got a market that is just incredible. No matter what it's going up, and that shouldn't be much a surprise given how much money has been pushed into the system," explained Lenore Hawkins, Tematica Research chief macro strategist, referencing last month’s major run-up.

"There's just a lot of money chasing not a whole lot of alternatives."

Meanwhile, the University of Michigan’s latest Consumer Sentiment Index print (released this morning) showed that sentiment tumbled to a 10-year low.

“Consumer sentiment fell in early November to its lowest level in a decade due to an escalating inflation rate and the growing belief among consumers that no effective policies have yet been developed to reduce the damage from surging inflation,” said the survey’s chief economist, Richard Curtin.

“Rising prices for homes, vehicles, and durables were reported more frequently than any other time in more than half a century.”

It’s clear that inflation has taken its toll on consumers. But even worse than the Consumer Sentiment Index was the Labor Department’s September quits report, which was also released today. 4.43 million Americans quit their jobs two months ago, bringing the quits rate (vs. the total labor force) to 3%. It was the most monthly quits ever measured by the Labor Department.

The data shouldn’t have come as much of a surprise given September’s poor jobs report. But still, it’s an inauspicious sign for bulls as the market lingers near its record high.

As a result, more volatility is likely on its way. It’s something that should ultimately frustrate traders looking for signals to get long, short, or just get the heck out of Dodge before they’re whacked by another “flash crash.”

On the other hand, the market has been able to handle periods of high volatility in the past. Stocks eventually made new highs quickly after volatility slowed on each occasion.

They’ll probably do the same thing when the next volatility wave hits equities.

But it won’t be comfortable when one inevitably comes. Least of all for bulls, who continue to buy near the top.

 

[DaveTrade]

This "Hidden Divergence" Just Gave a Crash Warning

Stocks down, rates up. As has been the case in each recent pullback, rising rates sent equities lower this morning.

Yields even hit new monthly highs as the market priced in a 19% chance of a Fed rate-hike by March of next year. But instead of a tech wreck, value shares led stocks lower today. The opposite usually occurs in response to rising yields as most tech stocks are growth-focused (i.e., debt-dependent), which makes them more rate-sensitive. This morning’s slump saw those roles reversed.

It’s certainly disappointing for bulls following yesterday’s release of far better-than-expected October retail sales data, which revealed robust consumer spending last month. Sentiment was prodded further upward by strong earnings from brick-and-mortar retailers like Walmart (NYSE: WMT) and Target (NYSE: TGT), both of which beat their EPS estimates.

However, both companies also saw their stock valuations crater shortly after reporting. The reason being that their margins slimmed significantly in Q3 due to operating costs rising faster than consumer prices.

“The consumer is spending and engaging in this economy at a level that is beating expectations,” noted GLOBALT portfolio manager Keith Buchanan.

“What’s hammered the market though is that for Target and Walmart, the two biggest retailers in the country from a brick-and-mortar standpoint, the costs of running those businesses are outpacing the strong consumer, so they’re missing on margins.”

We mentioned that after Q2 earnings were released earlier this year, margins would eventually narrow for certain types of major corporations. This was alluded to by the gap that initially formed between the Producer Price Index (PPI) and Consumer Price Index (CPI) back in Q1. We estimated that companies would either have to eventually raise prices for consumers or simply “eat” the increased costs, thus reducing their margins.

It seems now that the latter has begun and the CPI/PPI gap has only widened over the last quarter as well.

This is the kind of thing that should be spiking the market lower, but over the last few days, stocks are only down modestly.

Divergence between sentiment and assumed future performance has materialized in the broader market, too. Bank of America’s most recent Fund Managers Survey found that global growth expectations are still extremely low compared to the number of fund managers overweight equities.

November did see a slight increase in the net percentage of fund managers expecting a stronger global economy, but the percentage of fund managers overweight equities also went up. Bank of America has never measured a gap this large in the history of its Fund Managers Survey.

And much like the CPI/PPI gap, this one too must close at some point, either through a massive surge in the percentage of fund managers expecting a stronger global economy…

…Or a major crash in the percentage of fund managers overweight equities. Considering the number of problems facing the US (the world’s top economy), it’s unlikely that the former will improve so dramatically as to narrow the gap in a meaningful way. A reduction in the number of fund managers overweight equities is far more probable.

Does this mean it’s time for traders to exit the market completely? No, not yet. But it is absolute confirmation of the imbalances that form when stocks are pumped-up on unprecedented quantitative easing (QE) and historically low rates.

As a result, the market remains at a critical crossroads. If the S&P can breach new ground this week, investors may be treated to another major rally. A failure to do so could just as easily precede another rapid slump, followed by a potential bullish continuation as Wall Street seeks to go even more overweight equities opposite stagnant growth expectations.