In Case You Missed It: Key Charts of the Week

By Mark Masterson on September 29, 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…..

Charts from this past week:

Ok – on to the charts.

It’s a very interesting set up today.

First – I have been impressed with the persistent weakness in longer term government bonds (20 year + maturity Treasury bonds)

They have been sold relentlessly. 

• Long-dated Treasury ETF experiences record drawdown, trading at its lowest since 2011 (Bloomberg)
• Analysts see hedge funds increasing bearish wagers at a rapid pace (Reuters, Bloomberg)

The 20 year Treasury bond ETF just hit levels it las saw over 10 years ago.  You can see it is been relentless in the selloff.

While Treasury bonds have sold off, the dollar has rallied.

This rally is getting very long in the tooth in my view.  You can see that it remains overbought (blue arrows), and is due for a pause to the rally soon.

The reason the dollar has rallied relentlessly is the Euro and Yen have collapsed.

Below is the euro in black, and the dollar in blue.  As the Euro goes down, the dollar (blue line) goes higher.

The lesson of the chart is the gap between them will close – eventually.

Where I think we are getting close to a central bank intervention is in the Yen.

The Yen has been collapsing as well as you can see below.  It is nearing 150 versus the dollar. 

I suspect the Bank of Japan may intervene an d start buying Yen soon to stabilize the Yen.  That will likely push the dollar lower.

Here is the Japanese Yen 10 year chart.  The collapse in the Yen started two years ago.

Still watching the gold to S&P 500 ratio.  You can see that gold has stopped going lower versus stocks.  It looks like it wants to rise from here – but has not gained any traction yet.

This is the longer term view of gold to stocks. the commodity cycle, and it’s the reason why I continue to emphasize the importance of investing in hard assets.

As you can see below, we have been through an extended period of underperformance relative to stocks.

When this reverses, gold tends to have very strong outperformance for a period of time.

Incrementum 9 26 23

Thus far, September has been difficult for equity markets.

Yes, the S&P 500 market cap weighted index is still up 11% YTD.

Yet, when you equal weight the index taking away the weight of the largest 7 names, the equal weight index is now flat on the year.

Tradingview 9 27 23

Another view of the same…..

It’s been a great year for the 50 largest stocks in the S&P 500, which are still up 24% YTD even after the recent pullback.

But the performance of the average stock paints a very different picture with the S&P 500 equal weight up only 1% YTD and small caps down 1%.

Charlie Bilello 9 27 23

You can see that under the surface, its been weak.

Take a look at the below facts……

• Never before in Year 1 of a new bull-market have most stocks *not* participated in the advance. 
• Furthermore, this year’s rally in $SPX is the weakest Year 1 advance of any bull-market since 1957 and this is the first time when $SPX has undergone three 7% pullbacks in Year 1.

Many are blaming the weakness on the Fed.  In fact, the S&P 500 is now down 340 points, or 7.5%, since the Fed removed a recession from their forecast.

On July 26th, the Fed raised rates and said they were not longer expecting a recession.

The Fed marked the EXACT high in the S&P 500 which just hit its lowest levels since June.

Since then, rate cut expectations were pushed out by a year and corporate bankruptcies hit their highest levels since the pandemic.

Kobeissi Letter 9 27 23

However, markets have followed liquidity.  Forget what the Fed says and watch what they do.

The chart below shows the S&P 500 running in tandem w/Fed net liquidity.

The white is the Fed net liquidity, and the yellow is the S&P 500. 

So it’s not so much the peak or pause in rate hikes that matters, but rather what happens to the Fed balance sheet & reverse repo operations.

Holger Zschaepitz 9 27 23

The good news – short term the S&P is a bit oversold.

Less than 14% of S&P 500 companies are trading above their 50D moving average, the lowest level of the year.

You can expect a bounce from these levels – but expect further selling if the economy slows further.

Strategas 9 27 23

Another silver lining – there is value in value.

In fact, growth stocks are more overvalued compared to value stocks than they have been in 30 years.

Value Stocks are trading near the cheapest levels of the past 30 years

Barcharts 9 27 23

Bonds are trying for history.

The 10 year Treasury is now down 3 years in a row.  That has not happened ever since 1928.

Sentimenttrader.com noted that the average U.S. bond is trading at 86 cents on the dollar. That includes Treasuries, corporates, mortgages, et al.

You can see below that investors are split on how to handle this.

Hedge Funds continue to short treasuries at historic levels

While asset managers are building their largest long positions ever recorded!

Who is right?

Barchart.com 9 27 23

You can see below how investors continue to pour money into Treasuries despite the massive underperformance.

Note how capital consistently flows into the $TLT ETF despite a nearly 50% drop in its underlying price.

The red line is the performance of the TLT (20 year Treasury ETF), while the white is the total fund assets which have been rising as the fund falls.

Creascat Capital 9 27 23

The rise in yields is pushing up mortgage rates.

In fact, today the 30-year, fixed-rate #mortgage is now 7.9%.

Also notable that not a single sell-side analyst sees the 10 year yield north of 5% at the end of this year.  Not one!

As Strategas noted……

Remarkably, there are zero sellside analysts with a 10-year yield forecast north of 5.00% for year-end ’23 or end of 1Q ’24. Until the market proves otherwise, the trend in rates remains up. We’ve been asked frequently over recent days what leadership  looked like during the two prior bear steepeners of late-1969 and 2H-1973…

You must ask what if they are wrong and the Fed does keep rates higher for longer?

Strategas 9 27 23

I find these charts very interesting.

They are weekly charts of the US Dollar, the 10 year treasury yield, gold and commodities.

First – look at the US Dollar.  It is up now 11 weeks in a row.

At the same time – the 10 year Treasury yield has marched higher in a straight line for weeks since April…..

With the dollar and yields up – certainly gold and commodities were killed – right?

Right?

Well – you can see that gold has corrected sideways over the same time….

And commodities have gone UP during that same period…..

That is very different behavior and suggests there is buying under the surface for gold and commodities into the weakness.

I suspect markets expect a dollar decline soon.

It could come from another Japanese intervention in the Yen.

Notice that the dollar is now up to levels versus the Yen where the Bank of Japan intervened massively to strengthen the Yen.

See the below chart showing the U.S. Dollar breaking out to highest levels against the Japanese Yen since the BOJ intervened in October. 150 level now firmly in sight!

The yellow arrows show the massive intervention.

More coming soon?

Barcharts.com 9 27 23

Its amazing how concentrated this market has been.

Performance has been net zero for the equal weighted S&P 500.  Yet, the index is still up 11% on the year.  The Dow is now up 1% on the year.

S&P 500: +11.3%

Top 7 names: +81%

S&P 500 Equal Weight: -0.2%

Liz Ann Sonders

This is what the equal weight S&P 500 looks like this year….

BREAKING: S&P 500 equal-weighted index has fully retraced its 2023 upmove

Game of Trades 9 28 23

I loved the below chart. 

It compares the top 10 names in the S&P 500 from 1980 to today.  The lesson – nothing lasts forever.  Leaders today are not the leaders of tomorrow.  Notice how many energy names were the biggest, most successful names in 1980.  It’s tech today.  This will all change again over the next 10 years.

The Compound  9 28 23

Stocks are under pressure again as the longer end of the Treasury market is falling yet again.  Here is today’s headline….

• U.S. 30-YEAR TREASURY YIELD RISES TO 4.76%, HIGHEST SINCE AUGUST 2011

This is what the 30 year Treasury looks like on a price chart.

It is down 39% in the past 2 years.

This is supposedly the safest asset in the world – and it has collapsed.

There are multiple reasons for this.

Inflation is an issue.

The Fed hikes and keeping rates higher for longer weigh on fixed income of course.

Yet – government spending and a lack of confidence in fiscal restraint is playing a big part in it as well in my view.

Let’s look at the data….

According to the Kobeisi letter…..

• The US is now spending 44% of GDP per year, the same levels as World War 2.
• Deficit spending alone is a massive 6% of GDP per year.
• This means that after just ~8 years, the US deficit will grow by HALF of the US GDP.
• Since the debt ceiling crisis, the US has been borrowing ~$14 billion PER DAY to cover deficit spending.
• By 2033, Bloomberg projects deficit spending will be ~7% of GDP.
• The US is spending like we are in a recession while calling for a “soft landing.”

The Kobeissi letter 9 27 23

This chart blows my mind…..

• Over the last 3 months alone, the US has added $500 billion PER MONTH to the national debt, on average.
• Over the last 5 years, US debt is up a whopping 54%. Meanwhile, YTD interest expense just passed $800 BILLION.
•  

The Kobeisse Letter 9 28 23

Look at this…..

We are on track for the 4^th consecutive year with $6 trillion or more in government spending.  Read that again.  Look at the chart.

No wonder folks are selling the US long bond…..

The Kobeissi Letter 9 28 23

With interest rates rising, the cost of servicing the large debt and deficits likely means the Fed will be forced to become a buyer of bonds again via QE.  There are just not enough buyers for the huge issuance of debt.

But – QE will likely trigger more inflation as well.

This is the challenge for the Fed going forward – balancing these two headaches (higher rates versus rising/persistent inflation)

Crescat Capital 9 28 23

Meanwhile – higher rates and inflation are also weighing the consumer.

I know – the US consumer is a machine.  Are we seeing some limit to the US consumers ability to consume?

Credit card delinquency rates are rising and now at levels higher than the global financial crisis….

Game of Trades 9 28 23

Behold……

If this was a stock you would buy it – or wish you held it.

But – its not.  It’s the US debt level.

Bloomberg 9 28 23

Raising interest rates has a long history of causing a crisis….

Interesting chart below showing the Fed funds rate rising, then a crisis, then the Fed funds rate falling yet again……

RIA 9 29 23

As we leave September and enter October – I’ll highlight a few green shoots…..

Seasonality is positive in October for markets.  The 4^th quarter tends to be positive far more than negative.

Sentiment is nearing oversold levels.

The dollar may be topping soon – or perhaps yesterday.

Yields may be topping soon (at least short term) and also may have topped yesterday.

Lower yields and dollar would be a tailwind for many assets.

Below is the dollar chart update.

You can see the red candles yesterday, and we are getting follow through today.  It is very overbought (blue arrows) which have often marked at least a short term top.

Yields are similar to the dollar.

Very overbought – which tends to lead to a decline at least in the short term. (blue arrows)

Nice reversal candle yesterday in the blue circle right at the top of the channel.

Equity market seasonality coming into a good spot into October…..

Puru Saxena 9 29 23

Sentiment is getting reset.

It’s not quite to levels that signal an all clear – but you can see below the dumb money in red was in extreme optimism territory last month, and has fallen near extreme pessimism this month.  A little further down and we reach levels that often market at least short term bottoms for stocks.

Sentimenttrader.com 9 29 23