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Post by Norbert on Mar 30, 2023 10:57:13 GMT
What can the macroeconomic picture tell us about the future course of the stock market? Probably not much, but let's take a look.
1. Credit Availability
(click to enlarge)
A growing percentage of banks are tightening credit standards for commercial lending. The chart for retail lending is similar. When this happened in the past, stock market and economic weakness came next.
Bank loan officers are forward looking, they're close to the action, and what they see is making them nervous. It's their bank's money and careers that are on the line.
I think this is one of the best indicators we have. It suggests that the moment has not yet arrived to be long the market.
2. Credit Spreads
HY rates are up around 9% - 10%. This category of credit is therefore expensive and will constrain borrowing. However, unlike other periods of crisis, credit spreads (HY vs IG) are not unusually high. Banks are not demanding a huge additional rate for riskier lending. Perhaps they don't expect a significant number of defaults?
3. M2 Money Supply
Money supply is difficult to understand, but we can see that for the first time in many years total M2 is declining. M2 is often used as an inflation predictor, not an economic predictor. If that's actually the case, this suggests that inflation will continue to decline. Thoughts on M2?
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Post by Norbert on Mar 30, 2023 11:07:03 GMT
4. Consumer Sentiment
Consumer sentiment hit the lowest levels for 30 years in 2022, but is starting to recover. Unfortunately, it fell again this month. This is not constructive as an indicator of strong future consumer spending.
5. Inflation (CPI)
Headline and core inflation are recovering from their recent peaks, but remain high. This suggests that the Fed will see continued pressure to raise rates. Of course, this depends on their view regarding the relationship between rates and the risk of new bank failures.
Conclusions
These mostly forward-looking macro indicators suggest that the bad times are not yet behind us. At minimum, I'd like to see a change of attitude about tightening loan standards by the banks; and see renewed consumer optimism. It's not as if stocks are a screaming "Buy" thanks to low valuations. The bond asset class is now competing for investor dollars again.
Be careful out there!
Your observations and analysis? Do you agree or disagree?
N.
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Post by richardsok on Mar 30, 2023 11:56:47 GMT
I'd say you're spot on, N.
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Post by steadyeddy on Mar 30, 2023 12:00:26 GMT
Norbert, I agree with all the broad topics you laid out. Bonds to me represent much better opportunity than stocks for both yield and capital appreciation. Particularly for those of us approaching/in retirement. Having said that, I think international stocks offer compelling value relatively speaking.
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Post by racqueteer on Mar 30, 2023 12:06:31 GMT
Nice overview, Norbert.
I've repeatedly underestimated the resilience of this market. It seems to me that we're being held up by the HOPE that the FED is simply going to throw in the towel 'soon'. IF we're right, then, sure, the low is probably in... If WRONG, though, I'm not sure there's any actual EVIDENCE that things are going to get better. Despite the recent uptick, the overall market has gone basically sideways since November and is in a downtrend since February. The fact that people can get a guaranteed, almost 5% OUTSIDE of stocks is a further brake on the market. I think actual OPTIMISM is premature and caution is prudent.
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Post by uncleharley on Mar 30, 2023 13:00:01 GMT
I cannot comment on what your charts may be implying since I cannot make them larger for an accurate reading. When I click on them I get an error message from Big Bang. Having said that, I totally agree that this is a time for caution. Because the financial sector, as represented by the ETF XLF has turned up this week, I believe the Banks are less worried about credit spreads etc than we are. stockcharts.com/h-sc/ui?s=XLF&p=D&b=3&g=0&id=p49527306330&a=441093810&listNum=86I have found that consumer sentiment and other sentiment indicators are most useful when they run to extremes, as it is now, and then they are normally a contrarian indicator. The rate of inflation improving is more good news. So, is the glass 1/2 full or is the glass 1/2 empty? I dunno any better than anyone else, but my last 2 investments were Gold and N G related. I remain fully invested with my fingers on the key board. |
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Post by FD1000 on Mar 30, 2023 13:02:14 GMT
Looks good !!! On the other hand, "my" guy said the following on 3/22/2023 Bowley: The end is at hand. Bears, just surrender now. ( stockcharts.com/articles/tradingplaces/2023/03/the-bears-are-on-life-support-203.html) "Well, since that first 75 basis point hike on June 16th, the S&P 500 is UP, not down. We've had four 75-basis point hikes, two 50-basis point hikes, and two 25-basis point hikes. In my opinion, all of it was built into stock prices at the June 2022 low. How else do you explain the significant rate hikes over the past year and an S&P 500 that is 10% higher than it was when the first 75-basis point rate hike was announced? Stop listening to CNBC and the media clowns and pay attention to those who actually do research" "Do you remember early 2016 when the market bottomed and then soared? That occurred during a period when the Federal Reserve raised rates 9 times:" " If the stock market was chess, and I was on the bull side, then I've been calling "Check" for a few months now. I'm calling "Check" one last time. We're about to witness "CheckMATE". It's time to ditch your bearish thoughts. Stocks are about to scream higher. The Fed is our wild card short-term, but once the effects of this meeting dies down, stocks will soar." It's all about SHORT TERM.  In his latest report from yesterday he continues We will have inflation fear, then rate hike fear, then recession fear and stock will continue climbing. Why growth stocks keep going up? why home builder stocks go up? Why semi go up? Why unemployment is not higher? If recession is correct, why the above? According to my LT indicators, QQQ signaled a buy 2 weeks ago and SPY earlier last week. BTW, what does cautious mean? sell? |
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Post by win1177 on Mar 30, 2023 13:11:04 GMT
Great summary Norbert, and I agree with your thoughts. Time to be cautious out there.
We have about 12% in cash (money markets), 3% in bonds/ fixed income, rest in equity. Most of our equity positions have large capital gains, so not selling any positions. Fortunately, our portfolio generates enough income that we don’t need to touch principal, so just sitting on our hands doing nothing. Slowly adding to bond funds, with yields now competitive to equity returns. Don’t really see much in US equities we want to buy, at least at these levels. If stocks come down, we may add.
Win
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Post by Norbert on Mar 30, 2023 13:28:40 GMT
I cannot comment on what your charts may be implying since I cannot make them larger for an accurate reading. When I click on them I get an error message from Big Bang. Having said that, I totally agree that this is a time for caution. Because the financial sector, as represented by the ETF XLF has turned up this week, I believe the Banks are less worried about credit spreads etc than we are. stockcharts.com/h-sc/ui?s=XLF&p=D&b=3&g=0&id=p49527306330&a=441093810&listNum=86I have found that consumer sentiment and other sentiment indicators are most useful when they run to extremes, as it is now, and then they are normally a contrarian indicator. The rate of inflation improving is more good news. So, is the glass 1/2 full or is the glass 1/2 empty? I dunno any better than anyone else, but my last 2 investments were Gold and N G related. I remain fully invested with my fingers on the key board. Hi,
All the charts work for me; no problem enlarging them with a mouse click. Did anyone else run into this problem? TIA.
N.
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Post by uncleharley on Mar 30, 2023 14:27:09 GMT
OOPS!!! I had to log in first.
Consumer optimisim/pessimism is a sentiment indicator and as such is a contrarian indicator. The chart that is shown is bullish on whatever the consumer is being surveyed about. The rate of Inflation is falling. That is bullish for most stocks. I would add that the Fed is much closer to the end of the current interest rate cycle than they are to the beginning. I remain cautiously bullish.
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Post by retiredat48 on Mar 30, 2023 20:47:53 GMT
Let's accept all your charts/data Norbert.
To me, the issue is, as depicted on charts shown on CNBC and elsewhere, that the market does not follow the recession curve. That is, looking back in history, all but one recession of last 30 years had the market BOTTOMING way ahead of economic performance (recession confirmed) bottoming. The market lows of last year, are still the lows.
Similar to Fd's post above, re Bowley data.
R48
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