In Case You Missed It: Key Charts for the Week

By Mark Masterson on November 3, 2023

It has been said “a picture is worth a thousand words.”
 With that in mind, below below are a few of the most important or interesting charts from the past week…..

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About that strong Q3 GDP report…..

It certainly did not make Powell’s job any easier. 

Here is the headline…..  GDP report….

• US Q3 GDP (advance) +4.9% vs. StreetAccount consensus +3.8%;
• Q3 GDP Chain Price +3.5% vs. SA +2.9%

You know my view on it…..It’s amazing what you can do when you run a $2 Trillion deficit and borrow $600 billion in just the last month….

Interesting chart below…..

It shows that GDP growth is often quite strong right before a recession

Bank of America 10 30 23

I have several charts below taking a look at the equity and bond markets, sentiment, and market internals……

First – yes the S&P 500 is still up 7% on the year.

The problem is – under the hood – many stocks are down much, much more.  For example, the S&P 500 Equal Weighted Index is now down more than 5% this year

Barchart.com 10 30 23

Interesting article from Wolfstreet.com…..

• Fed’s QE Giveth, Fed’s QT Taketh Away: Russell 2000 Hits 3-Year Low, Nasdaq Back to Dec 2020, S&P 500 Back to Apr 2021

Below charts from the article tracking stocks and the Fed’s QT….

Did you know:

The Nasdaq Composite closed on Friday at 12,643, down 22% from the peak in November 2021, and back where it had first been on December 16, 2020.

Despite huge gyrations, it has gone nowhere in nearly three years.

Wolfstreet.com 10 29 23

The S&P 500 index closed on Friday at 4,117, down 14.6% from the peak on January 3, 2022, and back where it had first been on April 9, 2021

Wolfstreet.com 10 29 23

The Russell 2000 index, which tracks small stocks, which often lead the big stocks, closed on Friday at 1,637, a three-year low, down 33.4% from the peak on November 8, 2021, and back where it had been on October 9, 2020.

Wolfstreet.com 10 29 23

When looking at the equity markets – we can always find reasons for market moves.

Perhaps its simple…..

The Fed, over roughly the same period, has fueled the surge in stocks with huge QE until the end of 2021, when it began to taper QE. It ended QE in early 2022; and it started QT in July 2022. Since then, its balance sheet has dropped by $1.06 trillion to $7.91 trillion, the lowest since May 2021.

Wolfstreet.com 10 29 23

Tech remains the leader.

It’s done this before.

At today’s levels, it is very stretched relative to the broad index…….
The last few times this happened, it did not end well.

US tech vs. S&P 500 relative price performance back at +2 standard deviations!

Chart: BofA #SPX $SPY

Bank of America 10 29 23

Looking at sentiment via the Sentimenttrader.com “smart money/ dumb money” index….

Unfortunately, its not stretched just yet.  I like to see extremes to be able to market a meaningful low or topping area.

As you can see, the red line is low – but not below the extreme pessimism line yet.  That is the “dumb money” and often can signal a bottom when extreme.  (note the last few bottoms to the left)

Same for the blue line – the smart money.  It too is rising, but not yet over the extreme optimism line which often signals a bottom.

Sentimenttrader.com 10 30 23

The market is not too oversold either.  This surprised me frankly.  I would have thought we would be deep into the buy zone – but its not on the McClellan Oscillator.

So – we may not yet have a true and meaningful low in place.

On to bonds……

They keep selling off as yields rise.

Then – I see this in Barrons……

Again – unfortunate.

Markets need bond yields to stop rising.  Yet, the Barron’s cover index tells me that perhaps bonds may not be done just yet.

Remember, the Barron’s cover index has a bad habit of being a contrarian indicator.

Once it hits Barron’s cover, it’s already mainstream and may be late.

Barrons 10 29 23

I’ve seen it many times.  Over and over.

Remember this one from just this past June?  Did not age well…..

Barron’s 6 1 23

The cover hits and now I see that long-Term Treasury Funds just had their largest weekly inflow in history of $5.6 billion

It’s hard to see a great buying opportunity when we see all time highs in the buying…..of anything.

Winfieldsmart  10 29 23

And call options (bets that bonds will rise on the TLT)  volume has hit record highs recently, with most of those calls being bought to open

Markets and Mayhem 10 29 23

Finally, as TLT (long bond ETF) has fallen for two years now, the buying has been aggressive.  Blue line is the price, and green line is the flows into the TLT ETF.

I’d rather see a capitulation selloff and be ready to buy that than the regular buying all the way down.

Bloomberg 10 29 23

The headline overnight highlights the Treasury’s plan to borrow over the next two quarters…..

• TREASURY TO BORROW $776 BILLION IN THE FINAL THREE MONTHS OF THE YEAR (CNBC)
• In addition, the Treasury said it expects to borrow $816 billion between January and March.
• The Treasury just borrowed $1.01 trillion in the recently ended July through September period, the highest ever for that quarter.
• After borrowing $1 trillion in calendar Q3, the US is preparing to borrow another $1.5 trillion in calendar Q4 ’23 and Q1 ’24, or a total of $2.5 trillion, and that’s only for 9 months of the calendar.

It’s hard to see how this massive wave of supply of new debt will help to reduce interest rates.  More supply = lower prices = higher yields.

With the massive supply coming, you would think investors would be leery of buying into long dated Treasuries.  Yet, that would be incorrect.

As I reported yesterday, investors have been plowing money into the TLT long Treasury ETF as it has fallen all year – in hopes of catching the bounce when the economy slows.

Take a look at the volume of money flows into TLT.  We are at levels we have only seen three other times.  None of those three times were bottoms.

We’ll have to wait and see how this one shakes out – but like Strategas, I’m not convinced nor confident a top is in for yields just yet.  Just too much buying.  Bottoms typically have capitulation type selling.

Strategas 10 31 23

Just how concentrated is the performance of the S&P 500 this year?

Strategas reported overnight that through yesterday’s close, the 10 largest S&P 500 constituent weights have contributed over 134% of YTD gains. It’s a historically aggressive reading.

Take a look.  Nothing even close to this type of concentration.

Strategas 10 31 23

What we know is that the Fed may be done hiking.  They did pause again this time, and it is starting to look like the pause may be similar to past pauses.

Yes – Powell said he is open to more hikes.  However, I think the economic data is going to slow from here – and that may force the Fed to just keep rates where they are.

As you can see below, the end of the rate hikes is typically followed by plateaus before rate cuts begin.

We are now paused for three months.

Wolfstreet.com 11 2 23

According to the Fed futures – there is a 37% chance of another rate hike ahead and rate cuts beginning in June 2024.

The economic data remains on the weaker side.

Earlier this week, US manufacturing contracted for the 14 month in a row! Tied for second most only with the global financial crisis.

Macrobond 11 1 23

Inside the ISM  a grand total of 11% of industries (2 out of 18) posted any growth in October, the same depressed share as in the spring of 2020 and the fall of 2008.

David Rosenberg 11 2 23

Even the Atlanta Fed is starting to adjust down its GDP expectations.  Coming into the week they saw 2.3% growth.  It just slashed Q4 GDP Estimate From 2.3% To 1.2%

So – where are we now?

Investors are dying to go risk on.  We are still in the window for the year end rally that is so common.

Now the markets have at least a short term tailwind of a weaker dollar and falling bond yields.  If that continues – it will really help a year end bounce.

Sentiment is also supportive for a bounce in both bonds and stocks.  It’s not extreme, but certainly low enough for a bounce.

The market internals have still ben weak though.  Yesterday had far more 52 week lows than highs – even on a bounce. 

The rally is still in the largest names while the broad market remains weak.

The dollar is down almost a percent today.  (not shown in this chart)

You can see the dollar has been moving sideways.  The dollar will open right at the lower part of this channel – where that circle is.

If it breaks lower, that will be a tailwind for a year end bounce in risk assets, commodities, etc.

We won’t likely know for a few days.

Here is the 10 year treasury yield.

It too was hit hard yesterday.  It’s done this before all the way up – so we need to see if it can break that trendline to signal a more meaningful decline in yields.

It is now not overbought – so we don’t know just yet.

But – lower yields will be a tailwind for a bounce into year end – IF it continues.

Market is not oversold internally according to the McClellan Oscillator.

So – no clear signal from internals to buy for a bounce.

It was a natural place for a bounce in the S&P 500 anyway.

You can see below that it remains in a downward channel.

It bounced off the lower channel for now.

It has risen back over the 200 day moving average – which is a good thing.

We will need to see it get over the top channel line for more confirmation of a year end bounce.

So – lets revisit my charts and comments from just yesterday…..

I said this

“Investors are dying to go risk on.  We are still in the window for the year end rally that is so common.

Now the markets have at least a short term tailwind of a weaker dollar and falling bond yields.  If that continues – it will really help a year end bounce.

Sentiment is also supportive for a bounce in both bonds and stocks.  It’s not extreme, but certainly low enough for a bounce.

The market internals have still ben weak though.  Yesterday had far more 52 week lows than highs – even on a bounce. 

The rally is still in the largest names while the broad market remains weak.

The dollar is down almost a percent today.  (not shown in this chart)

You can see the dollar has been moving sideways.  The dollar will open right at the lower part of this channel – where that circle is.

If it breaks lower, that will be a tailwind for a year end bounce in risk assets, commodities, etc.

We won’t likely know for a few days.”

Update:  So here is the dollar chart updated

It closed yesterday right on the bottom of the channel.  It is now moving below that today based on the weaker economic data. (not shown)

A weaker dollar could certainly be a catalyst for commodities and risk assets for a few weeks.

Regarding the 10 year Treasury yield…..Here is what I posted yesterday:

Here is the 10 year treasury yield.

It too was hit hard yesterday.  It’s done this before all the way up – so we need to see if it can break that trendline to signal a more meaningful decline in yields.

It is now not overbought – so we don’t know just yet.

But – lower yields will be a tailwind for a bounce into year end – IF it continues.

Update:  Here is the updated chart showing that it did indeed break the uptrend line.

This is a big move in a short time suggesting some real panic out there in bonds.  But – lower yields have been a catalyst for higher risk assets this week.

Yesterday I highlighted that market internals were not oversold…..

Market is not oversold internally according to the McClellan Oscillator.

So – no clear signal from internals to buy for a bounce.

Update:  As you can see – this market is now in the sell zone from an internal perspective in the McClellan Oscilator. 

Could just be a short term reading where the market has to consolidate the gains from this week – but also can’t be ignored.

Finally – I showed the chart of the S&P channel yesterday…..Here was my comment….

It was a natural place for a bounce in the S&P 500 anyway.

You can see below that it remains in a downward channel.

It bounced off the lower channel for now.

It has risen back over the 200 day moving average – which is a good thing.

We will need to see it get over the top channel line for more confirmation of a year end bounce.

Here is the updated chart showing that the S&P 500 ripped right to the top of this channel.

We’ll see how it shakes out today and early next week….

Some interesting charts…..

Here is the update through the end of October for the S&P 500 chart, versus the big 7 names, versus the other 493 companies……

Clearly still a very concentrated return market without broad participation through month end.  Perhaps this past week can improve on that.

Updated through October 31^st….

Ayesha Tyriq CFA 11 2 23

Great chart showing how gold typically performance once the Fed stops hiking rates.

Blue line is Fed funds rate/ Gold line is gold price performance.

Incrementum 11 3 23