[Outlook] Markets Take Off On Another Win Streak!

The “Other” Asset Class You May Be Missing! Markets Take Off On Another Win Streak! The “Other” Asset Class You May Be Missing! By Donn Goodman August 18, 2024 Welcome back readers. Thank you for a few minutes of your time to uncover some important takeaways on the markets and the economy. While we cannot accurately prognosticate what the markets may do going forward, we have been on the “right side” of our observations and suggestions throughout 2024 in this weekly outlook. The last two weeks, even with a negative market, we provided plenty of reasons why you might want to stay on the long side of the market. These included impending economic softness (soft landing), unemployment increases, good to great earnings, election year influence, seasonal (July and August) positive historical periods and optimism and momentum that has been driving the market. (If you have not read or you wish to review the past two weeks of Market Outlooks, [you may go to the link provided here]()) We want to continue with this theme and provide notice that we are getting closer to September, an important National Election and what many believe is a tenuous period for stocks. Let’s jump right in. Good economic numbers and a “soft landing narrative” drove the markets higher this past week. You certainly will recall that as we took the turn from July to August and with the release of important numbers like job growth, unemployment, and the ISM, stocks broke down (quickly), and the discussion on Wall Street was about the potential for a recession. In fact, the first week of August many economists were pontificating that the Fed needed to have an emergency meeting and lower rates immediately. So much for that narrative. We were met with a quick pullback/correction (more on this shortly) and the markets turned on a dime two weeks ago and began to head up. Our view these past few weeks was that much of this was driven by a liquidity shock crisis driven by large institutional managers and hedge funds who had to sell securities to meet margin calls from the Yen carry trade. Surprisingly, many of them got adversely caught in this scenario after the Bank of Japan raised rates suddenly to offset their own revised growth and inflation. Good economic numbers. Before we address just how good the stock markets did this past week (the best week of the year), we want to point out that much of the prior period's weakness was driven by investor concerns that the Federal Reserve wouldn’t reduce borrowing costs fast enough to keep the US economy out of a recession. But new data this week showed ebbing inflation and a resilient and thriving consumer. These are the hallmarks of the Fed’s goal of a soft landing. The CPI came out and showed that the economy continues to cool down which should motivate Jerome Powell and company to commence with a rate reduction schedule in September. See CPI illustration below which identifies the specific areas of the CPI that continue to decline/cool: CPI "Excluding shelter, the headline and core inflation rates were only 1.8% and 1.7% y/y in July." See chart below: Consumer sentiment rebounds. This past week we also received an update on the University of Michigan consumer sentiment index. The index jumped in August and surprised to the upside. It was the first increase in five months. Part of the surprise was the consumer expectation for 12-month inflation declining to the lowest level since December 2020. On Friday we received the numbers showing an unexpected rise in retail spending. The Commerce Department’s release of sales of US retailers in July rose by a solid 1% from the prior month. This is the backbone of America’s economy, and this proved that we are unlikely to enter a recession anytime soon. This was welcome news and helped the S&P 500 surge to a new monthly high and into the green for August. Two important sectors that are vital to the US economy. I always like to refer to Mish’s Economic Modern Family and the influence of each member on the health of the economy and the markets. Two important (crucial) characters that often point to the health of the markets are Granny Retail and Sister Semiconductor. Below are two price charts for these sectors. Notice the snap back this past week in the retail sector. While it has not made a new high for some time (actually moving sideways in a rectangle box), it continues to show the consumer’s resilience by staying above the 50- and 200-day moving averages. A similar positive tale now for the semiconductor stocks (Sister Semiconductor) below, although the price action remains below the 50-day moving average. More on the tech stock rebound in a minute. The Markets For the S&P 500, last week was a perfect week in the markets. Every day, the S&P 500 index closed up with several very big up days. This resulted in the S&P 500’s best week since October 2023 (see chart below). As stated above the S&P 500 is now positive for the month of August. This was after a quick and significant pullback (more on pullback vs. corrections shortly). See the illustrations of the S&P 500 below: This week’s rally was not all about the S&P 500, as technology stocks had gotten “slammed” and actually went into a correction that surged for the past 6 days (more on this in a minute). See the illustration below: For the month of August, after being down over 10% the mega-cap darlings of the 2024 markets rebounded and closed 12% higher for the month. Tech led much of the early August weakness back into positive territory. See chart below: Besides tech stocks (shown above) another sector that has previously had a significant contribution to the S&P 500 was also a bright spot in the market last week. The communication sector showed strength from the consumer and helped the S&P surge higher. Within the Communication sector (below) are two mega cap stocks GOOG and META that have a heavy influence on the cap-weighted S&P 500 index See the illustration below: Did we go through a correction or just a pullback? Use the links below to continue reading about: - The difference between corrections and pull backs - Seasonal weakness - Active manager positioning - Why stocks could rally in a seasonally weak period - On asset class you could be missing - The Big View bullets - Keith’s weekly market analysis video [Click here to continue to the FREE analysis]()[Click here to continue to the PREMIUM analysis]( Best wishes for your trading, Donn Goodman 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 video analysis dives deeper. Risk On - All four indexes regained a [bullish phase](). Despite the monster rally, they are not overbought. (+) - [Emerging and developed markets]() followed in the footsteps of U.S. markets, closing in bullish phases (+) - With the strong rally in stocks over the last 10 days, value is no longer leading [growth](=) on both a short and longer-term basis. Growth is leading over value and the broader S&P 500. (+) - For both the Nasdaq and S&P, the [McClellan Oscillator]() is confirming upward price action and is now positive (+) - All [sectors]() were up on the week, led by Technology (XLK) with almost a 10% move in Semiconductors (SMH). Consumer discretionary (XLY) was up over 5% while Consumer Staples was only up 1.5% (+) Use the links below to continue reading about: - The difference between corrections and pull backs - Seasonal weakness - Active manager positioning - Why stocks could rally in a seasonally weak period - On asset class you could be missing - The Big View bullets - Keith’s weekly market analysis video [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 3 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. - 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. 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. Trading securities is not suitable for everyone. No representation is being made that the use of this strategy or any system or trading methodology will generate profits. Past performance is not necessarily indicative of future results. To unsubscribe or customize your email settings, [click here](=). [Unsubscribe]( MarketGauge.com 70 Sparta Ave, Suite 203 Sparta, New Jersey 07871 United States (888) 241-3060 MarketGauge.com | Sparta, New Jersey & Santa Fe, New Mexico | info@marketgauge.com | (888) 241-3060