Title: Market jitters: Rising bond rates suggest a market decline is imminent?
The transcript for this video was created on Wednesday, November 13 at 15:11 ET and you can find a link to it in the video description.
If you want a preview of what the market forecast is, go to slide 6.
Howdy, Swings!
As the Consumer Price Index (CPI) met market expectations, we saw a mixed reaction in the markets.
While we expected the market to fall across the board and the Standard & Poor's (S&P) 500 Index to trade in a range between 5970 and 6015, and that's what happened, we observed that the bond market and the volatility index (VIX) were falling against our expectations.
This suggests that the market is not in good health.
What's interesting is that the VIX is falling at the same time as the market, which is very unusual.
So, will the market rebound tomorrow, or will we see further declines?
Let's take a look at Fullhapce’s Daily swing market forecast and explore the possibilities.
Let's review Daily Market Index Movements.
The SPX and Dow remained stable, while the Nasdaq and Russell fell.
SPX: 5985.38, up 0.02%.
Dow Jones: 43958.19, up 0.11%.
Nasdaq: 19230.74, down -0.26%.
Russell 2000: 2383.3, down -0.91%.
Vix Index: 14.15, -3.81% down.
Let's look into Daily sector performance.
Media, financial data providers/exchanges, insurance brokers, REITs, software, internet, capital goods/industrial goods, consumer discretionary, consumer staples, consumer discretionary, consumer staples, energy, and transportation were strong.
Weakness was seen in semiconductors, aerospace/defense, construction/agricultural equipment, regional banks, health care, and metals/steel.
What happened?
- A report released on Wednesday showed that October's consumer price inflation was slightly less aggressive than expected, causing the yield on the Federal Reserve's (Fed) two-year note to fall.
This increased the likelihood that the Fed will cut interest rates on December 18th.
However, markets are not overly concerned about the data or monetary policy at the moment.
- They are more concerned about President Trump's next steps, especially regarding the national deficit, tariffs, and immigration policy.
These concerns could lead to higher inflation, which could push bond yields even higher.
- While in 2016, the stock market had the privilege of only considering the pro-growth aspects of Trump's strategy, the current situation is quite different.
That's why it's hard for the stock market to stabilize.
- On Wednesday, besides the consumer price index release, the only other news of note was a number of headlines out of Washington and some earnings releases.
Here are the Things to consider.
- On Wednesday, those who were pessimistic about the stock market expressed concern about potential problems with Trump's second term.
They were particularly concerned about three aspects: 1) the size of the debt, 2) import taxes, and 3) the government's policies on people moving to the United States.
- The media is reporting that if Trump is re-elected, he could impose more tariffs (taxes on goods coming into the U.S.) than he did in his first term.
- It's also possible that Trump's choice to replace Rina Khan at the Federal Trade Commission could continue Biden's tough tactics around controlling large tech companies.
- The consumer price index (CPI), which measures the average change over time in the prices urban consumers pay for a market basket of consumer goods and services, rose slightly in October to 2.6% year-over-year.
Meanwhile, the core reading, which refers to CPI excluding food and energy, has remained within a range of 3.3 to 3.2% since June.
- The latest report from the Federal Reserve Bank of New York on the size of household debt in the US showed that 3.5% of all loans were in some stage of delinquency in the third quarter of this year.
This is up from 3.2% in the second quarter of this year.
- In October, Japan's producer price index (PPI) rose significantly, which measures the change in the average price domestic producers receive for their output.
This could lead the Bank of Japan to consider additional ways to slow the pace of monetary policy.
Here we present the Daily Market Forecast for swings.
There is potential for weekly growth.
Historical and moving averages suggest a 4-day wait-and-see.
Daily market trends indicate a bullish (positive growth) trend, but market decisions appear to be stagnant despite the favorable CPI results.
Today's ambiguous market action is making it difficult to predict where the market will head, and tomorrow morning is expected to be volatile.
The market opened slightly higher, but soon fell to 5970, bounced back to 6010, and eventually closed at 5985, which is yesterday's close by our calculations.
As a result, the daily market uncertainty has reached a boiling point, making the market unpredictable and likely to be a volatile day.
Investors appear to be torn between capitalizing on the obvious timing of a rally and the onerous high valuations, and are not firmly deciding on an approach.
Our sector forecast suggests that bond markets could move higher, and amid this high level of uncertainty, the SPX could fall 0.8% over the next few days.
According to our calculations, we expect the SPX to move between 5930 and 6010 on Thursday.
If the jobless claims come in low, the SPX could move higher.
Let's explore some additional insights.
A number of factors are creating a positive environment for us:
- Balanced economic indicators that are neither too hot nor too cold - a "Goldilocks" situation.
- Generally good corporate earnings.
- Interest rate cuts by the U.S. central bank (Federal Reserve), which generally boosts stock market activity.
- Financial stimulus from the Chinese government to boost the economy often has a ripple effect on global markets.
- This particular time of year is traditionally supportive for markets.
- We expect these factors to continue to drive market prices higher over the next month and a half.
- However, there have been some worrying developments recently related to the actions and policies of the US government.
- Unless the Republican Party (Trump's party) can more clearly articulate a plan to fulfill the public's desire for tax cuts without further upsetting bond investors (or bond "vigilantes" who react quickly to fiscal policy changes), it may be difficult for the S&P 500 Index (the leading indicator of the U.S. stock market) to continue to rise significantly.
Let's look at the counterarguments.
The opposite scenario predicts that the Producer Price Index (PPI) and jobless claims could also be favorable for the market, so SPX could break through resistance and trade between 5985 and 6035.
Other rationales for this scenario include the following
- On Wednesday, we had economic data (October CPI), where both the overall rate and the core rate were in line with expectations.
Positive aspects were emphasized, including a slowdown in services inflation excluding housing costs.
- It was also noted that the Federal Reserve will need to see a significant increase in job creation by December 6 if it is to avoid cutting rates at its December 18 meeting.
- The "constant price CPI," a measure of price changes used by the Federal Reserve Bank of Atlanta, fell 0.3 percentage points in October to 3.6%.
- The elevation of John Thune to the Senate Republican leadership suggests that the Senate may not be entirely willing to bow to President Trump's requests on financial matters.
We believe that the opposite scenario is also a possibility given the current 4-day stay at SPX 6000 without much resistance.
Traders who agree with the opposite scenario may see this as an opportunity to buy more and then create protections such as stop losses or hedging to maximize profits.
Conclusion.
We are currently bullish on both the weekly and daily markets, but we believe that we are experiencing temporary downside pressure.
If the downside pressure clears up soon, or if it sticks around and stalls out as it is now, the rally could accelerate a bit more.
That's why, while timed bearish bets may seem attractive at times, they can be very risky and it may be wise to avoid them.
Traders who agree with our forecast may be wise to buy more on every dip to the lower end of our range, and then add safeguards such as stop losses.
Traders may also be wise to consider both the main forecast scenario and the counterfactual scenario to effectively manage risk.
Thank you for watching.
Fullhapce Intelligence, the best investment partner for swing traders.