Market Update

» Posted by on Mar 22, 2019 in Announcements, Shop Talk, Uncategorized | 0 comments

Stocks are slightly lower this morning after posting a huge rally yesterday.

I thought it was interesting to hear “Bond King” Jeffrey Gundlach’s comments about the recent Fed flip-flop from a tightening bias to an easing bias, essentially pointing to similarities of the Fed’s move back in 2007.

Remember, we witnessed the Fed flip from aggressively increasing interest rates in 2004, 2005 and 2006 to almost spinning on a dime and easing 2007 with three quarter point cuts.

We all know what happened after that… I should also note, the spread between three-month and 10-year Treasury notes has fallen below 10 basis points for the first time since 2007.

The two maturities were last below that level in September 2007, a run of 3,009 trading days, according to Bespoke Investment Group.

In afternoon trading yesterday, the spread was just 5 basis points, or as close to inversion as just before the financial crisis. I don’t think Gundlach is insinuating anywhere near the same type of meltdown in the stock market that happened during the financial crisis, but rather the fact we may have recently opened the door leading to a bear market.

Keep in mind, bear markets are not the same as a complete stock market meltdown. Most professionals see it as a period of time where the market needs to correct a bit because it has gotten out ahead of itself in regard to the ongoing pace of growth.

In other words, corporations might not grow as fast as they have the past few years and the market will need to readjust it’s valuations based on slower growth and tighter profit margins.

Remember, many companies were forced to massively scale back, cut costs and downsize during the financial crisis. These same companies didn’t have to pay workers a ton in wages because jobs were somewhat scarce, if you had a job you felt fairly lucky. Hence, when they started to come out of the hole their pace of growth was fairly aggressive as they were lean and mean.

After 10-years of climbing and exploding higher, almost doubling our previous all time stock market highs, there are now some legitimate questions about our “rate of growth” and overall profit margins.

The S&P 500 posted an all-time high in October of 2007 just above 1,585, there’s now a lot of talk in the market that the S&P 500 could trade north of 3,000 in 2019, that’s almost double the all-time high posted back in 2017.

I don’t know of many traders that are wildly negative about the U.S. economy, but I know a lot of smart traders that think the stock market might have gotten out ahead of itself.

Regardless of the bearish or bullish debate, one thing is for certain, the Fed’s new dovish stance has certainly tampered back the “volatility” in the stock market, something many believe was important for the overall integrity of the industry.

The waves were certainly starting to to get much more extreme and dangerous. The Fed’s new rhetoric has definitely calmed the sea! For what it’s worth,

Today’s traditional economic headlines will focus on flash PMI’s from Japan, Europe and the U.S.

The flash reading of PMI is simply an estimate of the Manufacturing Purchasing Managers’ Index (PMI) for a country, based on about 85% to 90% of the total PMI survey responses being accounted for. Since they are among the first economic indicator released for each month and provide evidence of changing economic conditions ahead of comparable government statistics, they can often have a significant impact on the trade.

In an elementary definition, it’s a forward-looking estimate of a country’s manufacturing sector.

Next week’s economic calendar is fairly light. I suspect most focus will be on headlines coming from U.S. trade representatives going to China for further negotiations.

There will also be several Fed speakers out on the circuit, readjusted Q4 GDP estimate, U.S. pending and new home sales, and a big Apple event on Monday

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