Not so long ago, the country and the stock market still had dreams of an eventually COVID-free society where a vaccinated population was going about its business just as it did in 2019 in a restored, even rejuvenated, economy.
Now in the face of a raging Delta variant, mass vaccine refusal based on nonsense and waning immunity even among the vaccinated, bizarre health mandates from several authorities around the world and certain US states, corporations dialing back hard on a return to the office (Apple and Charles Schwab among others just last week), upcoming complications caused by the return of colder weather and flu in the US as well as a global supply chain that has just seized up in many places, those dreams now seem rather naïve and pretty detached from reality and the stock market is beginning to get rather grumpy about it.
Throw in a toxic mix last week of yet another humiliation in an overseas military conflict, weak retail sales data, a crumbling oil price down 16% from recent highs, similar free-fall in other commodity prices like copper and lumber and China’s disappointing economic data, continued tech crackdowns and COVID-related port closings and the stock market had a very high wall of worry to climb last week and it ended up failing to do so, despite a valiant effort on Friday.
The real bogey, though, for markets last week was the"taper talk" of imminent slowing bond purchases by the Federal Reserve beginning to morph into a"taper plan" as the narrative quickly built that such a slowdown in market-propping activity had pretty much been agreed-upon and would shortly either be announced or at the very least strongly intimated.
As a result, all eyes will be on Jackson Hole, Wyoming this coming week where the Fed’s annual two-day shindig starts on Thursday and will feature Fed Chair Jerome Powell speaking on the economy in what many consider to be a perfect opportunity to give the rest of us real clues about what Federal Reserve policy will actually be in the coming months. Perhaps tellingly, the event will be mostly virtual.
But the sense that the economic recovery is at risk from the Delta variant surge and that the pandemic is not yet under control, particularly in the labor market where the vacant jobs and those available to fill them are entirely disconnected may ironically be what saves stock prices, at least in the short term.
An economy that is, to put it mildly, not yet out of the woods may just give Powell the excuse he needs to defer making any meaningful changes to the Fed’s highly accommodative stance and leave the punch bowl nicely filled for a while longer. If that is what comes out of Wyoming next week, there is definitely the possibility of a vigorous short term rebound in stock prices.
I will be fascinated to hear what he has to say, and for any fellow nerds who feel the same - it will be beamed live on the Kansas City Fed’s YouTube channel at 10am ET on Friday.
The plain fact remains, however, that the average stock is having a much worse time of it than the headline indexes are implying and there has been a substantial decrease in the number of stocks able to keep pace with these indexes. As of Friday almost half of all US stocks are below their 30-week moving average, a key metric demonstrating that there are currently thousands of stocks already in the middle of meaningful drawdowns and this is especially true in the NASDAQ-Composite index.
Those who live exclusively in a world of CNBC headlines, Reddit, Fin-Tok or just staring at Apple, Microsoft and Facebook stock going up every day may not have got the memo, but it is absolutely not a sustainable condition for broad indexes to continue moving higher at an average rate of a brand new all-time high every 3.5 trading days (S&P 500, 2021) with this degree of rapidly-contracting leadership and declining breadth of participation. It makes these indexes extremely vulnerable to any sudden bursts of supply that may appear.
Therefore, I would suggest that the body of evidence is currently indicating the distinct possibility of some kind of a temporary corrective pullback although there is little evidence that we are currently at a market top and heading into a long term bearish environment.
I continue to believe that longer term investors should remain disciplined, simply continue to add to broad diversified positions in a systematic, periodic way every week, every paycheck, every month or however they are investing and lean into any meaningful retreat in stock prices that may occur. Their future-selves will be glad they did.
Relatively speaking ..
- The tech-heavy NASDAQ-100 performed a little less badly than the S&P 500
- International markets, both developed and emerging, lagged behind the US although all three regions posted losses on the week
- Large caps were the least-worst performers with small caps trailing badly, despite a strong Friday rally
- Growth stocks had a tough week, underperforming value stocks
- The week’s best performing US sector was Healthcare (two biggest holdings: Johnson & Johnson, United Health)
- The week’s worst performing US sector for the second consecutive week was Energy (two biggest holdings: Exxon, Chevron)
Technical corner ..
- The proprietary Lowry's measure for US Market Buying Power sank hard, falling 11 points while that of US Market Selling Pressure rose 6 points
- SPY, the S&P 500 ETF, is still a few points above its 50-day and well ahead of its 200-day moving average. It ended the week 0.79% below its all-time high (Aug 2021)
- QQQ, the NASDAQ-100 ETF, is still a few points above its 50-day and well ahead of its 200-day moving average. It ended the week 0.44% below its all-time high (July 2021)
ARTICLE OF THE WEEK:
Each week I'll link to an interesting article I have come across during the week.
This week: The latest from Global X on what the big new investable themes are in the global economy.