Market Notebook
Discussion –
PRICE ACTION:
Equity prices, as measured by ticker SPY, closed higher on the week, while bond prices, as measured by ticker BND, closed lower on the week.
TECHNICAL ANALYSIS:
SPY prices show signs of possible consolidation on the daily chart. Friday’s closing price remained below the 20-day exponential moving average, so the tilt remains bearish.
BND prices remain in what appears to be a deeply bearish downward trend.
SENTIMENT:
Sentiment appears bearish for equities and bonds. Sentiment is likely to remain bearish until market participants have reason to believe that the Federal Reserve will slow the pace of rate hikes.
The fact that recent equity and bond price movements appear highly correlated to the downside weighs on investor psychology. A high correlation to the downside between equities and bonds tends to make investors feel like there is “nowhere to hide” as diversification across asset classes provides little benefit.
ECONOMY AND FUNDAMENTALS:
Regarding the real economy, the status quo continues. Significant inflationary pressures remain in the real economy, and the Federal Reserve continues to act to reign in those pressures.
“The US LEI fell again in September and its persistent downward trajectory in recent months suggests a recession is increasingly likely before year-end,” said Ataman Ozyildirim, Senior Director, Economics, at The Conference Board.
NEXT WEEK:
Much like last week, given the technical analysis picture, it seems prudent to avoid equity or bond purchases until the downward price momentum slows. Specific fundamental opportunities may warrant exceptions. Do be on the lookout for further signs of consolidation in equities.
Next week is a heavy data release week along with a heavy earnings release week. Expect volatility.
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.