Only 16% of Nasdaq stocks are trading above their 200-day MA. Getting close to levels of prior market bottoms (2002, 2009, 2018, 2020). Still won't call it, but if you like watching these indicators, here we are 👀
And just like that, Bloomberg's Financial Conditions Index went from loose (green) to the tightest since Mar 2020. Gives the Fed an excuse to pause if it wants to...
Roses are red,
My shoes were blue,
We said "I do",
I changed my name, too!
Liz Young Thomas effective today.
New handle:
@LizThomasStrat
Still a strategist, not a poet.
On Jobs Friday, I want to give a HUGE shout out to my beautiful mother who retired today! She spent the last 21 years as Chief Nursing Officer for Behavioral Health, and was the longest running CNO in a large WI healthcare system. Congrats, Mama!!
Thrilled to announce that I'm joining
@SoFi
as the Head of Investment Strategy. Ready to bring new content and insights to our audiences and spread the SoFi message even further!
Financial conditions have eased significantly over the last three months. In the last 20 years, the only two periods of time where conditions loosened further were toward the end of the 2008-09 recession & mid-2020.
The Biden admin said they would refill the SPR when oil prices were at or below $67-$72--we've been in or under that "buy zone" for over a week now...and crickets.
This chart speaks volumes about the current environment. The monthly mortgage payment on a median priced home even with a 20% down payment is now $2,081. Before 2022 the record high was $1,249.
So very honored to be a part of Kiplinger's 2022 Annual Forecast Issue. Next year will be an interesting one for markets; pick up a copy to read the full outlook Q&A!
The years-long relationship between the S&P 500's P/E (blue) & the real 10-Yr Treasury yield (plum, inverted) has broken down in the last few months--real yields imply a P/E of ~14x vs the current 18.5x.
Still one of the most important market dynamics to watch: inflation-adjusted Treasury yields (magenta, inverted) are at cycle highs, yet valuations (blue) remain lofty. No knowing how/when the lines converge again, but the gap is not likely sustainable.
It's been 27 trading days since we hit a new high on the S&P 500. The last time we went this long was...exactly this time last year. New highs happened on Sept 2nd, both years, before a pause. Weird.
I do this job bc I love talking econ (someone has to), I love making investing approachable, and I love being humbled by the market (I mean learning, I love learning). Here's to a new year of talking shop w/you🥂
Tomorrow is the first page of a 365-page book, write a good one!
S&P 500 profit margins have fallen to the post-1990 trend. Here's the rub though: margins tend to overshoot on the downside during periods of margin compression, and consensus expects margins to expand back to the highs of 1-2 years ago.
Interesting tidbit: if you look at smoothed m/m CPI prints, >80% of inflation is coming from Shelter. That will likely fall later in the year, but big for now. The Fed is watching core services ex-shelter, so the disconnect between what might affect markets and what might affect
"If you are going to trade [this market], make long-term trades only," says
@lizyoungstrat
. "But still right now, I know this isn't a popular opinion, it's okay to wait this out a little bit longer. It's okay to leave it in cash for a while."
Headline & core PCE inflation came in at 5.4% & 4.7% y/y, respectively. Higher than expectations and higher than previous month. First uptick in several months. A third rate hike in June is now fully priced in.
The Nasdaq's Cumulative Advance-Decline line has parted ways with index direction in recent days. In other words, the index has rallied despite weak breadth (more stocks falling than rising), the two lines are likely to find their way back together somehow...
The S&P 500 is over 4100, yet only 47% of S&P 500 members are trading above their 200-day MA. Compare that to last month's 60% and the 73% we saw in February and breadth has deteriorated. Want to see this improve if a rally is going to be durable.
Nominal 10-year Treasury yields are above 4.5%, while real yields are 2.17% (magenta). Hard to imagine rates moving up further or staying at these levels without stock valuations (blue) declining. Multiple compression risk is rising...
The S&P is staring at multiple decision points -- sniffing around the 50dMA, right on top of the "higher lows" line, and the 200dMA is just a hop away. It's about to get interesting...again.
Stock indices have diverged from liquidity proxies. For much of the last few years, US liquidity (proxied as the Fed's balance sheet minus the TGA & RRP facility) tracked the S&P 500. Until recently.
Since 1977, there have been eight yield curve inversions. The S&P 500's average return in the following year was +11.5%, with dividends +15.2%.
Inversions are not a signal to fade stocks.
The S&P 500 equity risk premium is at its lowest level since mid-2007. When you're getting less compensation for taking on risk, it's a good time to be choosy.
In an effort to stay balanced and recognize conflicting signals...while sentiment is, and has been bearish, momentum has been constructive. The Coppock Curve--a long-term momentum indicator--recently gave a buy signal for the first time since 2009.
Just a reminder that Quantitative Tightening doubles this month from $47.5B to $95B. The caps are $60B in Treasuries and $35B in MBS.
Cranking those screws a *little* further.
Relative to large-caps on a P/E basis, small-caps are the cheapest they've been since the early 2000s. I know, I know, I'm the de facto small-cap ambassador, but there just might be something here 👀
Aug headline CPI came in at 3.7% y/y vs 3.6% est. Shelter still the largest contributor, and core services ex-shelter (the Fed's "supercore") moved up slightly. The +0.6% m/m read is the highest since Jun '22. Surely, we can find things that have cooled, but I'm having trouble
The S&P 500's forward PEG ratio (i.e., P/E to expected growth, or how much you're paying for potential growth) is a lot higher now vs a year ago (1.54 vs 1.04). Only Energy & Utilities have lower PEGs now vs then. Rather take my froth on a cappuccino than in markets.
To put words in a picture...
On average, the S&P 500 peaks just before the start of a recession & bottoms about 3-7 months after it began (but before the recession ends). FWIW the average recession is ~12-18 months long.
The S&P 500's fwd P/E/G (i.e. P/E adj for growth) is 1.92x, approaching mid-2020 levels. After that peak, earnings and growth expectations surged due to stimulus and reopening, bringing this ratio down. Not sure we can expect the same now...stocks look expensive by this metric.
Producer Price Index (PPI) came in at 9.6% y/y, higher than the estimate of 9.2% and Oct's 8.8%. New record high. Strong increases across all categories. We started 2021 with PPI below 2% y/y and now we're nearly at 10%.
Refinancing at low rates & pushing debt out into future years has likely helped businesses maintain solid profit margins, but the maturity wall is approaching. Still some breathing room in 2024, but maturities ramp up significantly starting in 2025.
CPI came in at 6.4% y/y above expectations of 6.2%, and Shelter remained persistent due to the long lags before home & rental price declines feed through--Shelter is adding 3% to the y/y rate.
This print was sticky.
Hey autocorrect, why is it that you change common words like "out" to "put"...yet pay no attention when I type "tank you" to people? We need to discuss your attention to detail. Tanks.
If you invested $1,000 in the S&P 500 25 years ago, you'd have $4,927 today. A return of 393%.
If you sold out after a pullback and waited a week to get back in? $2,138. A return of "only" 114%.
Adjust your portfolio, sure, but stay invested.
Mortgage activity continues to drop, declining another 6% last week. Home price data should react in kind, but with a lag. Housing market cooling is a key ingredient for inflation cooling.
🧵Small-caps have outperformed large-caps coming out of recessions 6 out of the last 6 times (all that we have data for), and on avg by 14% from the trough. Props to
@StrategasRP
for the charts (and for the assist in my small-cap love affair).
Another one of those days. YTD there have been 28 days where the S&P 500 lost at least 1%. Besides 2009, you'd have to go back to the 1930s to find a year that had this many bad ones by mid-May. Yuck.
Much of last year's equal-weight S&P 500 outperformance vs. the market-cap weighted S&P was wiped out this month. We're basically back to where we were in Apr 2022, with the big names holding things up.
PPI came in above est on both headline (7.4% vs 7.2% est) & core (6.2% vs 5.9% est). Still falling quickly on a y/y basis, but upside surprises don't bode well for upcoming CPI prints.
4000 is probably the next big level of resistance for the market, with the S&P 500 staring both the year-long downtrend line & the 200-day moving average in the face 👀
You know how they say the retail trader tends to sell low and buy high? Don't be the one who proves it right.
Stay true to your risk limits by position on the downside (i.e., stops), but remember that when risks are present, opportunities tend to follow.
The quarterly read on Core PCE came in at 4.9% for Q1, higher than Q4's 4.4% & above the est of 4.7%. Still far from the Fed's 2% target and hasn't made much progress toward. This is a problem.
The quits rate fell to 2.3% in July and is now firmly back to the pre-pandemic baseline. This has historically led the Atlanta Fed Wage Growth Tracker by ~9mos, and suggests wage deceleration ahead.
They say you should leave the party while you're still having fun. So today I'll leave Twitter for the holidays while the market is still up.
Just kidding, you know I'll be back when the Packers play on Christmas Day. Until then, good tidings to all!🎄
Massive drop-off in ISM Services PMI for Dec, coming in at 49.6 vs 55.0 est. First contractionary print since May 2020 (50=neutral), with slowdowns in nearly every underlying component. This is what could change jobs data in coming mos, as services have been holding it up.