Further selling continued on Monday on weaker economic data stoking recession fears, the Yen carry trade unwind, and mega-cap profit taking.
Market Commentary
Further selling continued on Monday on weaker economic data stoking recession fears, the Yen carry trade unwind, and mega-cap profit taking.
Fears of recession were a large culprit in last week’s selloff after we saw a disappointing jobs report. Adding to fears was the thought the Fed could be behind in cutting rates to stave off a larger economic slowdown. Globally, the unwind of the popular Yen carry trade is adding fuel to the fire. The VIX, or the market’s volatility gauge, has spiked from 20 to 40 over the course of a few trading days. This implies that daily moves can be outsized to both the upside and downside over the course of the week.
With traders pricing in an acceleration in Fed rate cuts, the yield curve, which has been inverted most of the time since the Fed began its hiking cycle in March 2022, is nearly uninverted. The curve has steepened by nearly 50bps in one month. History says that the disinversion of the yield curve may mean the economy could be entering a recession.
This week, economic data releases are sparse. This morning we got a read on the service side of the economy. It showed improvement, helping to provide small relief to the sell-off in equities as yields also increased. The data came in much better than anticipated as the gauge moved up from 51.4 vs. the expectation of 50.9. The latest read also moved the gauge out of contraction territory.
With Newton models favoring a risk-off sentiment and volatility extremely elevated, sifting through the noise and focusing on signals will be imperative over the weeks ahead. We will likely see larger-than-normal moves in both equity and bond markets. Momentum in equity markets is still damaged and tactical traders will be looking for readings of exhaustion to the downside before putting more money to work. Defensive areas and interest rate-sensitive areas of the market are showing better readings. Real Estate and Utilities are leading while Energy, Technology, and Materials are lagging. The near-term challenges of the market will continue to be watched closely and time will tell whether this new trend will prevail or if the previous regime reasserts itself.
Economic Releases This Week
Monday: ISM Services
Tuesday: US Trade Deficit
Wednesday: Consumer Credit
Thursday: Richmond Fed President Barkin Speaks, Initial Jobless Claims
Friday: None Scheduled
Stories to Start the Week
Chipmaker Intel plans to cut 15,000 jobs or 15% of its workforce as it tries to compete with its more successful rivals.
Warren Buffett’s Berkshire Hathaway sold nearly half its stake in Apple. It still remains their largest stock stake by far.
Noah Lyles won the 100-meter gold in a thrilling photo finish.
Vice President Kamala Harris is interviewing half a dozen potential running mates ahead of a formal announcement this week. Shapiro and Kelly are viewed as the front runners.
What is Newton?
Our Newton model attempts to determine the highest probability of future price direction by using advanced algorithmic and high-order mathematical techniques on the current market environment to identify trends in underlying security prices. The Newton model scores securities over multiple time periods on a scale of 0-20 with 0 being the worst and 20 being the best possible score.
Trend & level both matter. For example, a name that moves from an 18 to a 16 would signal a strong level yet slight exhaustion in the trend.
Technical trading models are mathematically driven based upon historical data and trends of domestic and foreign market trading activity, including various industry and sector trading statistics within such markets. Technical trading models, through mathematical algorithms, attempt to identify when markets are likely to increase or decrease and identify appropriate entry and exit points. The primary risk of technical trading models is that historical trends and past performance cannot predict future trends and there is no assurance that the mathematical algorithms employed are designed properly, updated with new data, and can accurately predict future market, industry and sector performance.