Michael Lebowitz | Sep 27, 2021 07:19AM ET
The correction is now officially over as the market regained its 50-day moving average leading us to buy stocks. With the market finishing in the green on Friday after a large gap down to open the week such confirmed the bullish trend is still intact. This week, chock full of economic data and Fed speakers, will be important to fully determine whether the key support will hold.
Portfolio managers will be repositioning portfolios to be in the “right stocks” as the quarter end reporting approaches. As noted in this past weekend’s newsletter:
“Notably, two essential things occurred this week. The market regained its 50-dma and triggered our RIAPRO Money Flow “buy” signal. Both suggest that bulls have regained control, and we could see some follow-through buying next week.”
If the MACD signal turns this week, such will confirm the current “money flow” signal suggesting higher prices for stocks near term. Such is why we increased our exposures last week, and will look to return to full allocation levels quickly.
h2 Stocks To Buy/h2The following are the top 10 S&P 500 companies with the strongest relative strength.
Here are the top 10 strongest S&P 500 companies on MACD buy signals.
h2 New Home Sales/h2August new home sales came in above expectations at 740k (+1.5% MoM) versus a consensus of 708k. The median new home sales price grew to $390,900, which represents a massive increase of +20.1% YoY.
h2 China Crackdown Continues/h2Cryptocurrencies are selling off following news that the PBOC has declared all cryptocurrency transactions illegal. According to ZeroHedge, “In a statement the People’s Bank of China said the latest notice was to further prevent the risks surrounding crypto trading and to maintain national security and social stability.” Prices have previously dipped and recovered from attempts by the CCP to squash digital currencies. Will this time be different?
h2 Costco Earnings/h2Costco Wholesale Corp (NASDAQ:COST) reported earnings for its fourth fiscal quarter yesterday after the close. GAAP EPS of $3.76 comfortably beat expectations of $3.58. Fourth quarter revenue came in at $62.7B (+17.4% YoY) versus the consensus estimate of $61.5B. Sales growth was primarily driven by comparable store growth of 15.5% YoY, with double digit growth in all operating segments. We hold a 1.5% position in the Equity Model.
h2 Bonds Get Routed/h2Bond yields rose significantly yesterday, following a decent performance after the Fed policy statement on Wednesday. While too early to tell if yesterday’s move is just technical, it may be an early warning from bond investors that the Fed is behind the curve in tapering. Market implied five-year inflation expectations rose from 2.41% to 2.48%, supporting our concern.
Today bonds are being punished further, with the 10-Y yield pushed up 4 bps to 1.45% by mid-morning. If the 10-Y yield remains elevated through the close, it will have reached its highest point quarter-to-date.
h2 Did Ending Jobless Benefits Help?/h2The Wall Street Journal helps answer our question. Per their article, States That Cut Unemployment Benefits Saw Limited Impact on Job Growth:
h2 Fed Speakers/h2“States that ended enhanced federal unemployment benefits early have so far seen about the same job growth as states that continued offering the pandemic-related extra aid, according to a Wall Street Journal analysis and economists.” The graph below shows there is no discernable difference in job growth between states that ended benefits during the summer and the states in which they just expired.
Starting today and through next week, Fed members will make their thoughts known through a plethora of speaking engagements.
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