NYSE and the status of world markets

[DaveTrade]

1 “Big Lie” Most Traders Believe (But Shouldn't)

Stocks opened lower this morning following some wild futures activity. Today, it was the Fed’s favorite inflation indicator – the personal consumption expenditures price index – that had sentiment flip-flopping in pre-market trading. The index climbed 4.9% year-over-year (YoY) in December, slightly beating the consensus estimate (+4.8% YoY). That’s the largest yearly increase for the personal consumption expenditures price index since 1983.

Personal incomes, meanwhile, rose 0.3% month-over-month (MoM) vs. +0.4% MoM expected. Nominal spending fell 0.6% MoM, matching the consensus estimate. The last time spending dropped MoM was back in February 2021.

When adjusted for inflation, real personal spending sunk a whopping 1.0% MoM but remained up 7.1% YoY.

Overall, the data only provided further evidence for our current hypothesis: that the US economy is slowing down opposite inflation, which continues to rise.

This dealt a blow to dovish hopes this morning as the markets priced in almost five rate hikes for the year.

This kind of reaction from Treasurys makes sense if the Fed is truly set to raise rates in a meaningful way. But to any investors who’ve been paying attention since 2018, that should not be the expectation. Back then, the Fed tried to hike rates when the economy was strong, and inflation was below target. The market collapsed in response to the rate increases and plunged further through the 2018 holiday season. Fed Chairman Jerome Powell eventually capitulated and lowered rates.

In 2022, we’ll probably see a similar situation play out. The Fed will raise rates in March (and possibly even one more time after that) before lowering them by year’s end due to an equity implosion. Keep in mind also that March’s rate hike is unlikely to be a big one. The US government won’t be able to handle a sizable increase in rates due to its immense debt load.

Neither will debt-laden corporations nor consumers. Instead, Powell will barely nudge rates higher (if at all) while providing dovish forward guidance.

Amazingly, that’s not what Wall Street’s predicting. The major banks really believe that almost five aggressive rate hikes are coming down the pipe. JPMorgan (NYSE: JPM) CEO Jamie Dimon even said seven rate hikes wouldn't be out of the question.

Is that a realistic expectation to have, though? Over the last year, the Fed talked about raising rates and the dangers of inflation but did very little to combat it outside of a QE taper. And inflation is still rising despite the reduction in monthly asset purchases.

Remember how both Powell and Treasury Secretary Janet Yellen admitted that inflation was no longer “transitory?" late last year? Their recent actions (or inactions), however, suggest that they still think it is.

Powell and Yellen like to sound tough in their forward guidance, yet they refuse to make any truly hawkish policy decisions. Yellen even went so far as to berate Congress for penny-pinching last year during Biden’s push to pass a bloated infrastructure bill.

And so, as the February FOMC meeting inevitably arrives next month, all eyes will be on Powell’s post-meeting press conference. Will he say that a rate hike's officially on the books for March? If so, how big will it be?

Powell won’t provide concrete answers to either question, though. Instead, he’ll tell investors that a March rate hike is still “highly likely” without quantifying its size. Powell will then remind the market that the Fed wants to remain “nimble,” too, should things go bad.

This sets the stage for a few minor rate hikes followed by a market “crunch.” Several months later, Powell would then step in and lower rates as the US economy enters a recession.

Keep in mind, the scenario I just laid out is by no means guaranteed to happen. Nobody has a crystal ball. That’s doubly true when it comes to predicting monetary policy.

But it should be the working theory for rational investors who understand the relationship between rates, debt, and the US economy. I know it’s a grim outlook. And it’s certainly not what bulls want to hear with the major indexes sitting at the bottom of a rapid correction.

However, it’s what the market needs to realize as March approaches. If the rate hike comes in lower than expected, stocks could easily rally in response. Longer-term, though, a true bear market seems inevitable should the Fed continue down this path.

Which, according to Wall Street, involves raising rates to market and economy-wrecking levels.

 

[DaveTrade]

For me it's a waiting game at the moment, that's what the charts are telling me and I'm not sure if it will break down or up from this point. There is a lot of down momentum to turn around but I can see a glimmer of strength coming in, but no clear signs. Here are some charts of interest;

 

[DaveTrade]

Get Ready for a Tech Rally

Dow industrials down, tech stocks up. That was this morning’s trend as the market’s worst month since March 2020 drew to a close. Tech shares boosted the Nasdaq Composite in response to bullish calls from Wall Street. Citi upgraded its outlook on both Netflix (NASDAQ: NFLX) and Spotify (NYSE: SPOT), causing each stock to jump higher at the open.

Other tech stocks impressed, too. Apple (NASDAQ: AAPL) and Microsoft (NASDAQ: MSFT) continued their recoveries that began on Friday. Amazon (NASDAQ: AMZN) was up as well following a steep decline earlier in the month.

Overall, the S&P traded for a moderate gain, which was a great sign for bulls given how poorly the last few weeks have gone.

“Mostly, this week will be all about whether the correction low is already in or whether last Monday’s intra-day low is again challenged and breached,” explained Leuthold Group chief investment strategist Jim Paulsen.

“The longer the S&P stays above last Monday’s low or moves even further away on the upside, the more that calm will return, and fundamentals may again start to dominate emotions in driving the market.”

Aiding bulls is the fact that nearly every one of the market’s major players is hedged for a crash. Fearing a rate-driven plunge, banks loaded up on bearish positions seeking protection. But if equities rally into February, those same banks are expected to cover their shorts en masse, leading to a potential short squeeze that may even take stocks to new heights.

Don’t forget that last week, a mysterious trader single-handedly reversed sentiment by selling a massive number of puts. This effectively halted last Monday’s correction and led to an intraday rally of epic proportions.

If it’s clear that another uptrend is underway, this put seller may sell additional puts in order to capitalize on the bullish momentum, hastening the short squeeze in the process. This is the kind of thing that technical analysts live for: a sudden downturn followed by a face-ripping rally, easily identified with technical trading indicators.

But fundamental analysts would also be able to rationalize an early February rally after AAPL and MSFT both posted huge earnings “beats.” Up until these Big Tech names reported, it was a bit of an underwhelming earnings season.

Now, though, the stage is set for a short-term upswing. That doesn’t mean stocks will continue to climb into March as a rate hike approaches, or that a post-February FOMC meeting selloff is avoidable.

Short-term traders aren’t necessarily interested in a longer-term uptrend, though, and they really shouldn’t be. Anyone who called the recent correction made out with some impressive bearish gains. And if the bottom has truly been reached, bullish rewards await anyone willing to go long in the coming days.

Tech stocks seem the most likely to outperform given that they sold off so severely this month. Dow shares, by comparison, should lag.

But all three major indexes are likely to rise if the highs of today’s trading session are eclipsed. Especially as an enormous wave of shorts – all put on by hedge-happy Wall Street banks – simmer beneath the market’s surface, serving as potential “kindling” for the next bullish bounce.

 

[DaveTrade]

Why "Buyback Mania" Is Almost Here

Stocks ticked lower this morning following yet another wild premarket trading session that saw sentiment flip several times. The tech-heavy Nasdaq Composite fell the most of the three major indexes opposite the Dow, which only endured slight losses. The S&P split the difference.

Big Tech, in particular, dropped after a strong showing yesterday. Nvidia (NASDAQ: NVDA), Apple (NASDAQ: AAPL), and Microsoft (NASDAQ: MSFT) all sunk roughly 1%. Meanwhile, bank stocks rallied alongside oil shares.

"We believe that once the FOMC starts to raise the federal funds rate and details the pace of running off the Fed’s balance sheet, the financial markets will learn to live with tightening monetary policy as long as it doesn’t risk causing a recession,” said Ed Yardeni, president of Yardeni Research.

Exxon Mobil (NYSE: XOM) skyrocketed today after the company reported a blowout Q4 before the market opened this morning. XOM boasted $8.87 billion in quarterly profits, marking its largest profit since 2014. Biden’s push for renewable energy last year ironically boosted margins tremendously for the integrated oil & gas industry. This came at a great cost to consumers, but for XOM, it was a major boon.

The company distributed $15 billion to shareholders in 2021 while reducing spending. What’s more, XOM wants to slash spending further. The company just announced yesterday that it plans on closing its corporate headquarters in Dallas. Additional “belt-tightening” maneuvers are expected as well.

But the big news for XOM shareholders was that the company announced a $10 billion stock buyback program, which was roughly the size of the company’s revenues beat last quarter. This drove XOM shares over 5.50% higher through noon as bulls collectively laughed in the face of Biden’s green energy agenda.

And though most US stocks didn’t enjoy a Q4 as strong as XOM’s, the company may be setting a precedent for the near future. Additional stock buybacks from other corporations seem likely over the next few weeks. Share prices are trading at major discounts relative to their recent highs, after all.

For any company holding excess cash, buybacks are a bit of a “no-brainer,” even with many Wall Street banks predicting a recession later this year.

Wells Fargo strategists, however, still think there’s a good chance that the US economy will avoid a major slowdown.

“The latest decline is a normal market correction that does not signal a recession or the end of this bull market,” explained Wells Fargo global equity strategist Chris Haverland.

“We continue to believe that economic growth and corporate earnings will be solid this year, and that the Fed will not be overly aggressive in dialing back monetary policy.”

Haverland is probably right in that the Fed won’t dial up the hawkishness like most Wall Street analysts think it will. That doesn’t mean, however, that the US economy’s going to be firing on all cylinders through Q3 and Q4. Persistent inflation pressures should make sure of that.

But in the short-term, the stage is certainly set for a major rip higher despite this morning’s struggles as more companies prepare to unleash massive buyback programs alongside XOM.

 

[DaveTrade]

What January Means for the Rest of 2022​

By Mike ReillyFebruary 1, 2022

Rather than guess at what might be happening in Global markets, let’s focus on what is happening.

So, what do we know for sure today?

We know January is in the books and it will go down as one of the more volatile beginnings to a year in recent memory.

We know that bond yields are rising and central banks are tightening…

The Fed continues to chase inflation, but at least at this point they realize it’s not transitory – better late than never, I guess.

Rates, in general, have been moving higher, not just in the U.S., but around the world.

Although U.S. bond yields are off their recent highs, they remain above the important 1.75% level.

Globally, yields around the world are breaking out. German 10-year yields are trying to break above resistance at zero (yes, zero) and back into positive territory for the first time since 2019.

While Japanese 10-year yields are at their highest in over six years.

“So why should I care about rates?” you ask…

Because even if you don’t invest in the bond market, the biggest institutions in the world do, so it makes sense to know what they’re up to.

Individual investors should keep an eye on the direction of bond yields because rising yields mean we need to close our playbook that worked in 2019 and 2020, and dust off the playbook called What Works in a Rising Interest Rate Environment.

In the face of January’s volatility, we’re seeing the stocks that tend to do best in rising rate environments leading the market.
The two best sectors when rates are rising are Energy and Financials.

And as it turns out, those were the only two sectors up in January – Energy (XLE) and Financials (XLF).

So, as messy as January was, from a sector rotation perspective, markets are doing exactly what we’d expect.

Assuming rates don’t break down, we should ask ourselves, “how could investors take advantage of the rising rate environment?”

You could always look at the broad-based sector funds outlined above, or you could dig a little deeper into the industry group level and take a look at Oil Explorers and Producers.

Take a look at the Invesco Energy and Explorers ETF (PXE). Or rather than the broad sector, take a look at Regional Banks – the iShares Regional Banks ETF (IAT) or the SPDR Regional Bank ETF (KRE) are worth a look… all three of these have shown both relative and absolute performance relative to the broader market (SPX) this year.

If individual stocks are your thing, take a look at Chevron (CVX). We like companies that show relative strength. And Chevron is an example of a company showing both relative and absolute outperformance.

As you can see in the long-term chart above, CVX is soaring to new all-time highs as it breaks above resistance at its old high from 2014 and 2018.

If this is a valid breakout, we’d expect a rally to follow this seven-year base breakout.

Here’s a close-up of Chevron using Fibonacci to outline levels of support/resistance and future interest.

A break below the 127 area would likely mean Chevron isn’t ready to break out just yet and could mean the price falls back to its previous range – something to be aware of from a risk-management point. If Chevron can stay above the 127 level, there’s potential upside all the way up to the 173 range.

I’m simply using Chevron as an example of how applying Relative Strength to markets allows us to drill down to sector strength, industry group strength… all the way down to the strongest individual securities.

It just so happens that Chevron is a good example of our process at work…

HOWEVER, and there’s always a however, everything I’ve outlined above regarding the strength out of Energy, Financials, or even Chevron, is based on the current rising interest rate environment staying firmly intact…

If it doesn’t, all bets are off and the revised market environment will call for a different playbook.

 

[DaveTrade]

My personal opinion is that this year has potential to be a difficult year for the markets. First of all the companies holding larger debt will find it harder to handle rising interest rates. The rate of increases and the amount of each rate increase could be a make or break factor for some (or most), we don't even know for sure how many increases there will be. The small caps are most at risk and there are more of them, 2000 stocks small cap stocks;

There are other unknowns that could shock the markets this year and even though I think that it's a good practice to trade what you see, it is also important to maintain a situational awareness of the trading landscape that you're in. Some things to keep in mind this year, starting with what I just talked about;

Rising interest rates

Raging inflation

A fractured country, blue versus red

Russia invading Ukraine

China moving on Taiwan

Iran will not stop until it gets a nuke, and Israel will move to stop Iran

North Korea will lash out

 

[CityIndex]

You make a really good point. There are a lot of variables that could potentially weigh on markets and lead to heightened volatility this year.

Global equity markets seem to be trying to form a low after last week’s highly anticipated Fed meeting, but S&P500 futures also show that the last few days of gains have occurred on falling. This somewhat call into question the validity of this being the start of a new leg higher, or if it’s simply a bounce in the midst of a broader pullback.

All trading carries risk, but it should be interesting to see if markets can set the tone for the rest of the year as we continue to navigate through earnings reports, and the constant speculation of how aggressive central banks will look to be.

 

[DaveTrade]

Amazon Could "Make or Break" the Market Tonight

Stocks fell this morning after a major earnings “miss” jolted tech bulls out of their comfort zone. Facebook-parent Meta Platforms (NASDAQ: FB) reported earnings yesterday after the market closed, revealing a disastrous quarter and even worse forward guidance.

The company missed badly on sales and monthly active user estimates. What’s more, it became clear that CEO Mark Zuckerberg remains committed to Meta’s multi-year transition to the “metaverse” – a virtual-reality space intended to connect users within the Meta Platforms family of apps.

Wall Street banks were quick to cut Meta's projections for the year on concerns that Zuckerberg’s newest project would provide significant uncertainty at a time when advertising revenues are expected to slow. Competing social media platforms (like TikTok) are also drawing younger users away from Facebook and Instagram, which should only add to Meta’s growing list of problems, including a recent change to Apple’s privacy policy which severely limits how advertisers are able to target users on Apple products.

It was a shockingly bearish earnings call, and one that completely broke rank from the rest of Big Tech. Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), and Google-parent Alphabet (NASDAQ: GOOG) all enjoyed massive quarterly earnings “beats” by comparison. Amazon (NASDAQ: AMZN) reports after the close this afternoon, and following Meta’s terrible showing, it’s shaping up to be a true “make or break” moment for tech.

“Facebook is a confidence builder,” said TD Ameritrade chief market strategist JJ Kinahan.

“It’s a super widely held stock and a core part of many portfolios, so when it has such a difficult time, it just shakes overall confidence. The question right now is, is this a Meta-specific issue, or is this going to be an overall issue?”

If AMZN surpasses analyst estimates, the market’s recent bullish reversal should continue. If the e-commerce giant “misses,” though, a further retracement seems likely. And not just because of how it would impact sentiment among other stocks.

A deep AMZN selloff would drag the Nasdaq Composite and S&P lower all on its own. This morning’s Meta plunge, for example, was the worst one-day correction by a stock in the market’s history. It wiped out $195 billion in market cap, narrowly beating the $190 billion lost when AAPL “flash crashed” back in September 2020. FB also commands 2% of the total S&P market cap, which means today’s drop in FB shares single-handedly dragged the broader market index roughly 0.44% lower.

Through noon, the S&P is down roughly 1%. Almost half of that loss can be attributed entirely to Meta’s bad earnings call yesterday.

A repeat performance from AMZN this evening could have a similar effect on the major indexes. The silver lining today is that the market’s losses have mostly been “compartmentalized” to FB. But a rough earnings call from AMZN could indicate that there are bigger problems afoot, which may cause the bearishness to spread.

This could ultimately result in a major S&P correction, in which the index is pulled down by both losses from a heavily weighted company (AMZN) and other, smaller tech names. That’s what makes tonight’s AMZN earnings so important, especially if the major indexes close down on the day and within range of a bearish continuation past last week’s lows.

 

[CityIndex]

That's a really good analysis. It definitely does seem like the market’s focus has shifted away from interest rates, and other macro factors, and towards company earnings.

With this being the case, underwhelming reports over the rest of the US earnings season could easily force stocks into another round of selling. However, the relatively positive results this morning already appear to be providing some solace as US index futures are trading broadly higher at the time of writing.

All trading carries risk, but it should be interesting to see if these disappointing results can be contained within a few stocks, or if it will weigh on the broader market.

 

[DaveTrade]

These Stocks Could "Beat Big Tech" in 2022

Stocks traded relatively flat this morning after enjoying a major bounce back in the week prior. The market rallied fiercely before falling last Thursday in response to a poor Meta Platforms (NASDAQ: FB) earnings call, in which CEO Mark Zuckerberg provided dismal forward guidance.

Investors were initially worried that this could indicate a wider-spread issue for tech shares. Then, Amazon (NASDAQ: AMZN) reported a blowout quarter one day later, effectively stopping the Meta-driven selloff.

A major January jobs “beat,” reported on Friday, seemed to stabilize stocks as well even though it was the result of a massive, unprecedented seasonal adjustment by the Bureau of Labor Statistics (BLS). Last month’s real, unadjusted jobs data saw a loss of 2.8 million payrolls. Had the BLS used an apples-to-apples seasonal adjustment, mimicking its adjustments of the past, the headline number would’ve come in at approximately -301,000 jobs.

The most important part of the January jobs report had nothing to do with payrolls, however. Instead, rising hourly wages (+5.7% year-over-year vs. 5.2% expected) should’ve scared bulls. The Fed’s watching inflation – not employment – as its key metric for hiking rates. In that regard, the January jobs report provided a highly bearish impulse.

But stocks rallied through Friday’s close nonetheless. Today, the major indexes largely stalled as sentiment wavered once again.

“Investor psychology is shifting almost week-to-week, meaning sticking to one’s investment convictions is about as hard (or painful) as ever, but also never more important in driving outperformance,” explained Raymond James strategist Tavis McCourt.

“Our conviction remains that economic strength will keep [earnings per share] going higher along with interest rates, as we suspect we remain a long way from higher rates materially slowing demand in the economy.”

As we saw in 2018, back when Fed Chairman Jerome Powell raised rates several times, the market tanked before the rate hikes really impacted earnings.

These days, though, earnings have suffered for many of the market’s smaller stocks. Meanwhile, Big Tech names (minus Meta) feasted.

“It has been a raging bear market for high multiple stocks and for anything speculative in nature. It’s just been taken out to the woodshed. So, there’s probably some value being created there now,” said Morgan Stanley’s Mike Wilson.

He’s absolutely right. For Big Tech, the top might be in as interest rates threaten to surge in the coming months. There are plenty of beaten-down stocks following the latest earnings season, too, especially in the small-cap Russell 2000 index.

In 2021, the S&P ripped 26.89% higher while the Russell 2000 gained just 13.46% by comparison. This year, the S&P is down over 5.50% and the Russell 2000 has almost doubled that, falling roughly 10%.

Investors searching for value need look no further than small-caps. On the other hand, there’s nothing to suggest that the small-cap rout is over just yet. The Russell 2000 plunged below its mid-2021 lows back in January.

And the index won’t hit key support unless it drops another 10% from here. It’s been said that small-cap stocks provide a clearer picture of the US economy than the S&P because only 10% of the Russell 2000’s revenues come from foreign sources. The S&P derives roughly 40%-50% of its revenues from overseas.

This suggests that, contrary to most of Wall Street’s opinion that "the going is good,
the US economy is in serious trouble. And the Fed’s about to hike rates into economic weakness.

Once the dust settles, small-caps could be set to finally overachieve as rising rates limit high-growth (and as a result, high-debt) tech firms. But until the pain stops and small-caps show signs of reversing higher, Big Tech could continue to steal the show in the short term.

Even if, macroeconomically speaking, Big Tech's dominance may be drawing to a close as early as next month.

 

[DaveTrade]

Country Bias Could Cost You the Gold​

By Mike ReillyFebruary 7, 2022

In the spirit of the Olympics, let’s discuss the idea of home-country bias as it relates to investing – particularly here in the United States.

As part of what I do here, I’m often asked to review prospective clients’ portfolio holdings and allocations to provide feedback…

And I must admit, it’s been a long time since I’ve reviewed a portfolio with anything more than the occasional token International stock – this is particularly true of American investors.

Talk about home country bias! It’s as though investors here in the U.S. think we always win the gold medal.

I realize for a lot of “newer” investors, all they’ve known is a market in which U.S. growth stocks have overshadowed their International value peers.

And it’s true that, with few exceptions along the way, growth has been the place to be for the last decade with the greatest gains found in tech-heavy, U.S. stock markets.

It’s been this way for a long time and for a very simple reason: There are far more value and cyclical stocks overseas than in U.S. markets.

And the last decade has been a market dominated by growth stocks.

So I can understand a little home bias for those of us residing here in the United States.

But it would be a mistake to think that the U.S. will always sit atop the podium…

So, is now the time to expect a new gold medalist?

It’s possible. We’re beginning to see the tide shift in favor of value – something I’ve written about extensively the last several weeks.

And with that shifting tide towards value over growth, we’re also beginning to see early signs of reversals in the U.S. vs. World relative trends.

Today, I’m going to give you a look behind the curtain, to see a few developing trends that we’re watching closely.

The chart below is a Relative Strength ratio chart comparing the strength of Global equities excluding U.S. stocks compared to the S&P 500.

There’s a clear trend of outperformance by International equities over the domestic S&P 500, beginning in late December 2021.

We can see a similar trend developing in Emerging Markets as well.

Here is a Relative Strength ratio chart comparing Emerging Markets to the S&P 500.

After being in a significant downtrend vs. the S&P 500, Emerging Markets (EEM) is now favored over U.S. markets (S&P 500).

And Emerging Markets (EEM) just broke out above a year-long downtrend line (the red arrow). This is a positive development adding to a narrative of International Markets over the U.S.

We’ll want to keep an eye on EEM to see if it retests that down trendline and/or can continue higher from here.

In the “did you know” column… China makes up over 30% of EEM.

That matters, because China’s stock market has gotten smoked over the last year causing a drag on the performance of EEM.

Below is a Relative Strength chart comparing EEM to the S&P 500 vs. an RS ratio of EMXC vs the S&P 500. EMXC represents emerging markets excluding the China drag.

What I want to point out is the strength in emerging markets excluding China (black line) vs. EEM that includes the China drag (shorter blue line).

Even with the significant strength of Emerging Market countries, excluding China, there is still more work to be done before we have the conviction to favor international stocks outright, but the weight of the evidence continues to move in that direction.

And now, I’m going to share a market I’ve had my eye on since the early days of January ‘22.

Brazil – yes, Brazil. Among one of the worst-performing global equity markets since the COVID crash.

But before you scratch your head, take a look at the Relative Strength coming out of Brazil today.

And as the saying goes, “Where there’s relative outperformance, we expect to find absolute outperformance.”

And that’s exactly what Brazil has provided since January 1, 2022.

Brazil (EWZ) has more than doubled the return of U.S. growth and the S&P 500 Index.

Check out this Year-to-Date Performance chart – Brazil (EWZ) +12.86% vs. United States (SPY) + 5.57%.

I’d venture to say that, if investors had more of their capital allocated to countries like Brazil, rather than the U.S., they’d be singing a very different tune about how they feel about “markets” in 2022.

See what home country bias can do?

Oh well, back to Brazil for a moment…

Here’s a long-term ratio chart comparing Brazil to the U.S. S&P 500 index (SPY) going all the way back to 2002.

It’s interesting that Brazil is finding support in the same area where they began their incredible run 20 years ago. Coincidence? Probably not…

This is definitely a solid start for Brazil, but structurally, Brazil (EWZ) is still in an ugly downtrend, so investors will want to see some additional follow-through moving forward to confirm this reversal is legit.

There’s another very good reason why we have a close eye on Brazil right now – it’s the same reason we’re watching many countries overseas right now.

It’s because of their heavy exposure to value stocks.

Over 2/3s of Brazil’s index is allocated to Materials, Financials, and Energy stocks, all of which we’ve discussed for weeks, as an area to overweight right now.

Because of Brazil’s heavy tilt towards value stocks, their newfound relative and absolute outperformance shouldn’t be too surprising.

It’s what we’d expect to see if the rotation from growth to value persists.

The message I want to get across here isn’t just about Brazil.

Yes, Brazil’s chart is cool and investors could certainly consider it, assuming it fits with your own risk tolerance, time horizons, etc.

What I think is more important than just Brazil is that for the first time in years, we’re seeing strong evidence of a reversal in these relative trends that would favor international indexes and their value components over the S&P 500 index or NASDAQ and heavy growth allocations.

And just to prove this isn’t just a Brazilian phenomenon… here’s one more example: a country that shares a border with the United States.

Canada: Look at the move off the 2020 COVID lows.

And see how price is consolidating above its pre-financial crisis highs, instead of below them, like so many others? The ability of this index to remain above those levels reflects the strength out of the Canadian market.

There is a lot to like about Canadian stocks. When we talk about value stocks around the world, Canada should be one of the first countries that comes to mind.

So, assuming these trend reversals stick, a shift away from U.S. markets in favor of International stocks would make a lot of sense.

 

[DaveTrade]

Why Stocks Could Be “Stuck” Until Thursday

Stocks climbed slightly higher through noon after opening lower this morning. Intraday sentiment flip-flops have become the norm over the last week, as have muted trading sessions. Today was no different with a critical Consumer Price Index (CPI) reading due out this Thursday.

Mixed quarterly results from America’s top corporations certainly didn’t build any “breakout momentum,” either. Pfizer (NYSE: PFE) reported earnings, missing estimates while providing disappointing forward guidance. PFE shares fell in response.

Overall, though, it’s been a better-than-expected earnings season. Roughly 77% of 300 S&P companies that reported exceeded estimates. But thus far, forward guidance has left many shareholders feeling uneasy about the future.

“Despite a solid beat this quarter, guidance weakened significantly. [...] Guidance is also sparser than usual – we note only 76 instances of [earnings per share] guidance issuance in [January], slightly below last Jan and the lowest of any Jan,” wrote Bank of America’s Savita Subramanian in a note.

With many companies now thinking that a significant slowdown is on its way, bulls have lost much of their initial February enthusiasm.

It’s something Wall Street hinted at over the last few weeks; the idea that the US economy is on a path toward slowed growth, if not a full economic contraction. This outlook could worsen if the next batch of inflation data proves to be hotter than expected.

“The tumultuous market action continues as the combination of Fed policy uncertainty and economic transition remains in focus,” said Canaccord Genuity analysts.

“Unfortunately, this is the environment we are going to be in for a while as the monetary and economic mid-cycle transition unfolds.”

Oanda strategist Edward Moya expanded on the topic of inflation, adding that the market’s recent bout of choppiness could easily persist until Thursday’s CPI release.

“US stocks will struggle for direction until the latest inflation tilts market’s expectations as to how aggressive the Fed will tighten into what is still deemed as an overvalued stock market,” Moya said.

Historically, the first rate hike in a tightening cycle has usually been met with an equity correction. If that’s the case this time around, stocks should fall through the second half of March.

In addition, this has typically been a good dip-buying opportunity. But in 2022, economic expectations are far worse than they were during the last few tightening cycles. That could mean the first rate hike-driven selloff may only intensify as the year progresses and more hikes arrive.

“We consequently see the announced combination of tapering, hiking and balance-sheet reduction in the same year as too risky for financial markets,” Guilhem Savry, Unigestion’s head of macro and dynamic allocation.

“The risks for US growth are greater than highlighted by the Fed, and we see little room for a strong upside in risky assets.”

Other analysts disagree.

“Markets will get used to the tightening regime at some point,” explained AXA Investment Managers chief investment officer Chris Iggo.

“The growth and earnings forecast revisions in the next few months will be key.”

So, as has been the case since last Thursday, the market remains split on what’s going to happen when Fed Chairman Jerome Powell finally announces the first rate hike. There’s always a chance that he “chickens out,” of course. And our own hypothesis suggests we'll see a few rate hikes followed by a rate reduction in response to a major equity slump, similar to what happened in 2018.

Everyone has their own theory, and for that reason, stocks may not move in a deliberate manner until March arrives. Inflation reports, like the Producer Price Index (PPI) and aforementioned CPI, could certainly tip the needle one way or the other, but the market’s moderate-term destiny lies in the hands of Powell, who isn’t set to speak (and potentially reveal a rate a hike) until after the March FOMC meeting on the 16th.

 

[DaveTrade]

The markets will most likely be volatile next week due to the unscheduled meeting the FED called for 11:30am Monday, and the looming situation with Russia/Ukraine. A lot of volatile uncertainty, not for me. Very short term traders may love the environment next week but I'll be sitting on the sidelines watching the show with interest and waiting for some clearer direction to re-enter the markets.

What will you be doing? Drop a note here and let us know.

 

[divs4ever]

i still have some spare cash .. and some targets that maybe within reach

i will be looking to cherry-pick ( for long term holds )

am MUCH MORE worried about inflation than war-talk/false flags

PS keep watch on oil there seems to be games being played there as well

 

[DaveTrade]

PS keep watch on oil there seems to be games being played there as well

Yes agree, oil, bond yields and gold.

 

[divs4ever]

Interest-Sensitive Funds Showing Big Topping Patterns

Interest-Sensitive Funds Showing Big Topping Patterns | Investing.com

Stocks Analysis by Tim Knight covering: Barclays PLC, iShares iBoxx $ Investment Grade Corporate Bond ETF, iShares iBoxx $ High Yield Corporate Bond ETF, SPDR® Bloomberg High Yield Bond ETF. Read Tim Knight's latest article on Investing.com

www.investing.com

i have been watching this trend with interest

( i have about 3% bond exposure via two LICs i hold )

some might notice several bond/fixed interest ETFs have been testing 12 month lows

 

[DaveTrade]

This Could "Make or Break" Stocks Tomorrow

Stocks were up big this morning as tensions cooled between Russia and Ukraine. The Nasdaq Composite led the way while the S&P and Dow trailed closely behind. Treasury yields marched higher, too, but did little to stop a strong tech rally.

As we mentioned in yesterday’s commentary, the likelihood of a Russian invasion was vastly overblown by the mainstream media. Reports that Russian forces had moved into “attack formation” sent the market temporarily lower yesterday.

For weeks, the White House insisted that an attack was “imminent” as well. But Russia never invaded. And today, Russia claimed that it pulled some of its forces off the Ukrainian border.

Igor Konashenkov, a spokesman for the Russian Ministry of Defense, said that troops “have already begun loading onto rail and road transport and will begin moving to their military garrisons today.”

He continued, adding that additional troops engaged in military drills in Belarus (which also shares a border with Ukraine) would return to their bases on February 20th.

Ukrainian Foreign Minister Dmytro Kuleba then responded to Konashenkov’s announcement.

“We in Ukraine have a rule: we don’t believe what we hear, we believe what we see,” Kuleba said.

“If a real withdrawal follows these statements, we will believe in the beginning of a real de-escalation.”

Julianne Smith, Biden’s Ambassador to NATO, warned that Russia may simply be attempting to mislead NATO forces.

“We’ll have to verify that and take a look. You may remember, in late December, there were some similar claims that came out of Moscow that they were de-escalating and in fact, facts on the ground did not support that claim,” Smith said.

“This is something that we’ll have to look at closely and verify in the days ahead.”

And though NATO didn’t believe Konashenkov’s statement, investors certainly did. Stocks rallied on what was the first piece of good news in almost a week. Crude oil prices plummeted in response as well, only adding to the market’s big morning gains.

If energy costs fall further, this will help slow the pace of inflation.

What won’t do it, however, is additional economic activity by way of tumbling Covid cases.

“De-escalating tensions between Russia and Ukraine are helping overall sentiment today, but that isn’t the only good news. US Covid cases are now down 80% from their January peak, another sign the reopening will be moving forward,” said LPL Financial’s Ryan Detrick.

If it were up to the Fed, though, the “reopening” would be put on hold indefinitely as rising demand has only made inflation worse. It’s gotten so bad that Fed officials are officially sounding the alarm on inflation in premarket interviews.

“I do think we need to front-load more of our planned removal of accommodation than we would have previously. We’ve been surprised to the upside on inflation. This is a lot of inflation,” said St. Louis Fed President Jim Bullard on CNBC’s Squawk Box yesterday.

Tomorrow, the Fed will release the minutes from its January FOMC meeting. Bullard’s comments suggest that the Fed believes it is behind the curve on raising rates. If the meeting minutes show that’s the case, additional selling should follow as the market prices in an even more aggressive rate hike schedule.

So, while today’s morning rally was a welcome sight, it doesn’t confirm that a larger upswing is on its way. There could easily be more pain in store for bulls tomorrow afternoon if the minutes release goes poorly, regardless of whether Russia continues pulling troops off the Ukrainian border or not.

 

[DaveTrade]

How Putin's "Secret Plan" Could Hurt Stocks

Stocks fell today as tensions on the Ukrainian border continued to flare. The Dow, S&P, and Nasdaq Composite all traded lower through noon.

Russian President Vladimir Putin extended several olive branches earlier today in a possible attempt to calm invasion fears. In particular, Putin said that he would be open to talks with the US on new security proposals. He also insisted that Russian troop movements in Belarus, which borders Ukraine to the north, were only defensive in nature.

Following a series of mortar attacks yesterday (credited to a separatist faction within Ukraine), US Secretary of State Antony Blinken said this morning that Russia is attempting to create “false provocations” to justify a full invasion.

“What’s at stake is, first yes, the lives and wellbeing of Ukrainians, but what’s at stake are larger principles that are the foundation of the entire international order,” Blinken explained.

“Those principles are being challenged right now by Russia in Ukraine, principles like you can’t change the borders of another country by force, principles like you can’t dictate to another country its choices, its decisions, its policies including with who they associate, principles like you cannot exert a sphere of influence to subjugate neighbors to your will.”

That’s pretty rich given the US’s early history, which quite often involved changing borders by force and telling other countries what to do - the latter of which is a practice that persists to this day. On one occasion (right after the Civil War), the Union amassed 40,000 troops on the Mexican border. They wanted France to leave Central America so that it would remain under the US’s sphere of influence. And it worked.

That sounds oddly similar to Russia's goal with Ukraine, doesn't it?

Despite earlier remarks, Putin ultimately dashed the hopes of many bulls today when he said that “we are seeing a deterioration of the situation” in Ukraine.

And this was all before the market opened.

Around 9:50 am EST, civilians were evacuated from the region of Donbas (in southeastern Ukraine) as heavy fighting broke out between Ukrainian forces and pro-Russian separatists.

A little over an hour later, a car bomb exploded in the Ukrainian city of Donetsk outside of a separatist government building in an apparent assassination attempt.

Thus far, no formal military action has occurred between Russian and Ukrainian forces. For now, the two pro-Russian separatist factions – the Donetsk People’s Republic and Luhansk People’s Republic – have been the ones stirring things up.

It could be argued, however, that both groups are acting on the behalf of Russia, if not receiving orders directly from Russian officers.

Nonetheless, stocks won’t collapse so long as Russian forces remain on their side of the border. If an incursion does happen, though, it’s likely to occur under the guise of a peacekeeping mission. Putin will probably claim that Ukraine has lost control of the situation in Donbas if the violence continues. The Russian military would then cross the border to enforce a ceasefire between the pro-Russian separatists and Ukraine.

This is entirely a hypothetical situation, of course. But investors should ask themselves:

If this actually happens, would it be interpreted as a true invasion by the West?

It might not be enough to provoke a military response from the US. Although that doesn’t rule out economic restrictions being placed on Russia by the Biden administration, which could have dire consequences on the price of oil, inflation, and equities.

We’re not there yet, but it’s something to be mindful of. Despite today’s provocations, odds still favor a conclusion that doesn't result in a full-scale Russian invasion. A smaller incursion, on the other hand, still seems to be on the table. And with stocks trading near their January lows, that's serious "correction fodder" as a rate hike approaches in March.

 

[divs4ever]

Nonetheless, stocks won’t collapse so long as Russian forces remain on their side of the border. If an incursion does happen, though, it’s likely to occur under the guise of a peacekeeping mission. Putin will probably claim that Ukraine has lost control of the situation in Donbas if the violence continues. The Russian military would then cross the border to enforce a ceasefire between the pro-Russian separatists and Ukraine.

while i agree , i think stocks are in danger from several other vectors

OFFICIALLY Libor is supposed to be replaced which could cause all sorts of dramas in the derivative market , AND big chunks of the global economy are flat out lying about their financial health

now an interesting twist i hear the odd mention about is some trying to remove Zelensky and replace him with the previous ( Biden-friendly ) leader ... what if this is a power struggle dressed up as a civil war , with one group hoping the US will step in and reappoint a puppet government

after all the pro-separatists are militarily strong enough to actually separate ( but maybe not take all the territory they desire to take with them )

i think Putin would be quite content to see the Ukraine become the 'Libya of Europe ' further destabilizing both NATO and EU and all he needs to do is rattle the sabre occasionally .. after all he can sell plenty of oil and gas to China and India and not care about the fate of the aging Ukraine pipeline ( let the fools buy expensive US LNG )

 

[DaveTrade]

Michael Reilly sent me an email, see below;

Hey Dave,

Over the past 20 years, it's been nearly impossible for any asset class to displace U.S. Equities as the strongest asset class on a relative basis.

But as of this week, Commodities have rolled over Equities to be the strongest of the six major asset classes that we track.
You want to know where to invest? Start at the top with the strongest asset class.

And as of today, Commodities are king.

That's a pretty big deal considering it doesn't happen often.

We can't be sure how long Commodities will hold the reins of Relative Strength leadership, but what we do know is that it's often a mistake to fight the trend.

Investors now have an opportunity – not only in Commodities themselves but in stocks supporting the Commodities as well.