Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Unraveling Stock Market Rally

Stock-Markets / Stock Markets 2010 Jun 14, 2010 - 02:23 PM GMT

By: Paul_J_Nolte

Stock-Markets

Whether you call it a merry-go-round or a roller coaster, the ride of the past two weeks has put you right back where you started. While a rally was not too surprising, given the huge amount of selling over the prior two weeks, the markets seemed to still be trading on data from overseas rather than economic data here. For example, the huge rally on Thursday was, in part, due to tremendous exports reported by China rather than our rather lousy report on weekly jobless claims.


Our trade report indicated we imported a bit more than we exported, the question is given the generally poor economies around the world, where are all the Chinese exports going? Finally, last week we highlighted a report from Economic Cycle Research Institute (ECRI) indicating the decline in economic activity in the US. Their latest report is negative indicating the economy is slowing rather than gaining steam, and the implications for stocks are historically for negative equity returns while their indicator is declining below zero (meaning a trough has not yet been made). Could be a long hot summer on that roller coaster!

With the economic data so poor (lousy retail sales, mortgage activity slow and still high jobless claims), why did the markets rally? Like a rubber band that is stretched too far, the markets had declined rather steadily for too long and were ripe for at least a bounce. In two days of trading, on employment Friday and last Monday, the two day declining volume was over 12x that of advancing volume, the worst since the market meltdown in ’08. The last two times this metric was this bad, the markets rallied over 7% in a couple of days. So the compression of the markets early in the week was very high and investors sought out the newly created value in various stocks. Whether that continues remains to be seen and improving economic data is going to have to make that happen. Coming up will be reports on inflation (or maybe we should say deflation) and additional housing data. Of course, any adverse news from outside the US will be an influence on our markets as well.

The treasury market continues to be the safe haven investment vehicle of choice as risks to bond investors begin rising around the world. A few bond “risk” indicators are giving us concern about the overall markets. First is the “TED” spread, or the difference between the three-month t-bills and LIBOR rates. Since bottoming in mid-March at roughly 10 basis points (bp), it is now above 50bp. While high, (it was consistently over 100bp from mid-07 to early ’09), the trend higher is of concern. Also, the spread between government bonds and high yield (or junk) bonds is also widening. Both are indications that investors are willing to accept lower yields for much lower risks, which could translate into lower stock prices as well.

By Paul J. Nolte CFA
http://www.hinsdaleassociates.com
mailto:pnolte@hinsdaleassociates.com

Copyright © 2010 Paul J. Nolte - All Rights Reserved.
Paul J Nolte is Director of Investments at Hinsdale Associates of Hinsdale. His qualifications include : Chartered Financial Analyst (CFA) , and a Member Investment Analyst Society of Chicago.

Disclaimer - The opinions expressed in the Investment Newsletter are those of the author and are based upon information that is believed to be accurate and reliable, but are opinions and do not constitute a guarantee of present or future financial market conditions.

Paul J. Nolte Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in