Market Notebook

by | Aug 4, 2024

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Discussion – 

PRICE ACTION:
Equity prices, as measured by the ticker SPY, closed lower last week, while bond prices, as measured by the ticker BND, closed higher.

SPY    -2.12%
BND    +2.02%

TECHNICAL ANALYSIS:
SPY price appears established in a medium-term upward trend. The recent pullback in price signals that a transition to a corrective pattern is possible. SPY price has a long way to fall before the medium-term upward trend is invalidated.

BND price broke out higher above the 2024 highs suggesting a possible transition to an upward trend.

SENTIMENT:
Equity sentiment turned bearish on the week. Investors appeared concerned about deteriorating economic fundamentals and the Federal Reserve’s stubbornness in keeping rate expectations pinned to no change. 

ECONOMY AND FUNDAMENTALS:
The Sahm indicator moved into recession territory last week. To be clear, no one indicator can predict a recession. Nonetheless, caution is suggested for long-only equity investors as the equity landscape evolves.

Throughout the tightening cycle, jobless claims have never indicated a recession by our measure. A recession is very difficult to have unless jobless claims roll over. Focus on this indicator is warranted.

The 12-month trimmed mean PCE is already below the long-term average, meaning that the Federal Reserve is already within a window within which it could cut interest rates at any time.

The first rate cut will likely happen over the next few months. Market participants should be on the lookout for recessionary conditions following the first rate cut after a tightening cycle. To avoid recessionary conditions, the Federal Reserve will have to get the timing of rate cuts exactly correct. Thus far, the Federal Reserve has managed the economic cycle well; however, evidence is building that they are behind the curve and need to change policy soon.

All the best during the week ahead!

Disclaimer: Nothing in this discussion should be considered investment advice. The content of this discussion is strictly my personal opinion and subject to change at a moment’s notice. Investment advice can only be provided to you by your investment professional and not by a general market discussion such as this one. If you wish to speak with an investment advisor, contact us. We can probably help.