[Market Outlook] New Highs. But Perhaps Not Where You Want Them!

Positive Seasonality May Be Coming! [Company Logo] New Highs. But Perhaps Not Where You Want Them! Positive Seasonality May Be Coming! By Donn Goodman October 22, 2023 [image] Happy weekend Gaugers. Thanks for tuning in. It was an ugly week in both the bond and stock markets. Headlines did their part to keep investors in a selling mood. Geopolitical risk continued to rule the markets. Uncertainty in the economy, given worldwide distractions, was the theme of the week. Tensions intensified between Israel and Gaza. The Biden Administration asked for $100 billion in emergency funds to address humanitarian aid in Gaza, Ukraine, domestic border funding, and disaster aid for the next 12 months. Inflation fears persist. Interest rates hit their highest levels in more than a decade and a half. And then there was the renewed conversation that we are headed for a drastic economic slowdown and a possible recession. The Fed Chairman likes bond prices falling (yields rising). On Thursday (October 19th), Jerome Powell said the recent rise in longer-term bond yields is tightening financial conditions as the central bank wants and could "at the margin" mean there is less need for the Fed to increase rates further. "It doesn't seem to be principally about expectations of us doing more," Powell told the Economic Club of New York. It looks to be mainly an effect of higher so-called term premiums, he said, and does not reflect expectations for higher inflation. He added that he is "not blessing any particular level" of longer-term rates. Here is an additional summary of what Chairman Powell stated this past week: - “Additional evidence” of a strong economy may merit more rate hikes. - Return to 2% inflation will require below-trend growth. - Committed to “sufficiently restrictive policy.” - “May still be meaningful tightening in the pipeline.” - Summer inflation data was promising, but September was less encouraging. Surprisingly, the Fed is staying committed to their 2% inflation target. We (MarketGauge) think that is not only unlikely but soon they may alter this path and announce the new normal is closer to 3%. With or without Jerome Powell speaking, the bond market has clearly had a “mind of its own.” After spending much of 2023 at or below 4% on the 10-year Treasury bond market, yields have exploded higher. [image] You may recall a column we wrote back in the summer suggesting that if the 10-year broke 4.35% on yields, we thought you could see 5%. I received some pushback from that article as a few friends and our valuable readers suggested that bond rates wouldn’t get that high. Today, intraday, we hit 4.99%. And we may not be done. See chart below of the rise in yields since May of this year. [image] For long-time subscribers who have followed several of our investment strategies, you will certainly be aware of how good our historical TLT trades have been, especially as recently as 2020 when we moved from stocks to TLT. TLT is an ETF that gives an investor exposure to the 20-year Treasury Bond. Yesterday, the TLTs hit a new low on price action. Mish was mentioning to me the other day that so many people were recommending TLT (ETF) as a good trade the past few weeks. She went on several TV programs to try and stop that silliness. So far, it has been a bad trade, unless of course, you were short. See chart of the TLT ETF price action below: [image] “Inflation will be sticky and stay elevated for longer.” Those have been Mish’s comments for over two years as she has appeared on numerous TV, Podcasts, interviews, and her daily column. I guess one had to live through the 70’s and 80’s to understand this concept more clearly. One way to evaluate the long-term cycle of inflation (unless, of course, you go to the grocery store or eat meals out at restaurants) is to divide TIPS (Treasury Indexed Protected Securities-which track the rate of inflation) by IEF (the 1-3 year Treasury ETF). The results show inflation winning out. See chart below: Use the links below to continue reading about: - The market’s suggestion that inflation will remain elevated - Why interest rates can still go higher - How to earn more risk-free - Strategies that are outperforming the market with lower risk - Surprising relative returns in real estate - Reasons stocks may bottom soon - The complete weekly Big View market analysis [Click here to continue as a free member]() [Click here to continue as a PREMIUM member](=) Best wishes for your trading, Donn Goodman CMO Market Gauge Asset Management [image] Every week we review the big picture of the market's technical condition as seen through the lens of our Big View data charts. The bullets provide a quick summary organized by conditions we see as being risk-on, risk-off, or neutral. The the video analysis dives deeper. Get started here and continue with the links below. Risk-On - Despite the bad short-term action, the [New High / New Low]() indicator appears to be basing out for the S&P500 and Nasdaq Composite. (+) Risk-Off - Markets got beat up this week with 3 of the 4 [key US indices](=) now below their 200-day moving averages with both Diamonds (DIA) and the S&P500 (SPY) failing to reclaim key support levels. (-) - 3 of the 4 key US indices (excluding Nasdaq) now have negative [trend strength scores](=) (TSI) and 2 indices are now negative on the year (Diamonds and Russell 2000). (-) - [Volume patterns](=) continue to look negative with zero accumulation days over the past 2 weeks for the SPY and only 1 for the Nasdaq. (-) - [Speculative sectors](=) led the market down this week with poor performances in Semiconductors (SMH), Homebuilders (XHB), and Consumer Discretionary (XLY), while safer plays such as Retail (XRT) and Consumer Staples (XLP) were slightly up. (-) - Pretty much all global equities with the exception of those that have exposure to new military conflicts were all down this week while [commodities served as a flight to safety](). (-) There's more... Use the links below to continue with more Big View bullets, the Big View video analysis and the continuation of the commentary from above. [Click here to continue to the FREE analysis and video.](=) [Click here to continue to the PREMIUM analysis and video](=). Best wishes for your trading, Keith Schneider CEO MarketGauge P.S. When you’re ready, here are 4 free ways we can help you reach your trading goals… - [Book a call with our Chief Strategy Consultant](), Rob Quinn. He can quickly guide you to the resources that you'd like best. - To discuss having assets managed by MarketGauge strategies, contact Ben Scheibe, at MarketGauge Asset Management at Benny@mgamllc.com - Get the foundational building blocks of many of our strategies from Mish's book, [Plant Your Money Tree: A Guide to Building Your Wealth](=), and accompanying bonus training. - [Review quick descriptions]( of our indicators, strategies, services and trading systems here. [image] Get more - follow us here... Twitter [@marketgauge]() and [@marketminute]() and [Facebook]() To stop receiving this go [here.]( Got Questions?Office hours 9-5 ET (New York time) Email: info@marketgauge.com Live Chat: Go to bottom right corner of our [home page.](=) Call: 888-241-3060 or 973-729-0485 There is substantial risk of loss associated with trading any securities including and not limited to stocks, ETFs, futures, and options. Only risk capital should be used to trade. 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