February Flush: Stocks Pounded As Worst Month Since January 2016 Ends

The Dow Industrials lost a total of just more than 1000 points for the month of February, which, on the surface, may sound like a big deal, but, in reality, it amounts to merely a four percent loss.

In other words, if one had $100,000 at the start of the month, it would be only $96,000 at the end. Not much to worry about, right?

Maybe so, but this month-long fall, rise, and fall had a number of interesting characteristics, and the supporting (or non-supporting) data is suggesting that whatever has shaken markets is not yet over, especially when the losses on the final day of the month were the fourth largest of the month and the biggest since the 1000+ point washout on February 8.

The entire month was marked by voracious levels of volatility. Out of 19 trading days, 15 featured closes more than 150 points higher or lower than in the previous session. Breadth continues to erode; Wednesday's advance-decline line showed losers outpacing gainers by a 5:2 margin. New 52-week lows are beginning to pile up while new highs are on the wane.

Economic data hasn't been very encouraging. Today's second revision of 4th quarter 2017 GDP came in at 2.5%, slightly lower than the 2.6% reported in January. New and existing home sales have slumped for two consecutive months, and today's Chicago's PMI reading of 61.9, was a six-month low, down from 65.7 in January.

Inflation appears to be picking up steam in some areas, slipping in others, and bond yields remain elevated in the near term. With the Fed set to raise the federal funds rate in March, there's little to make the case for a sustained continuation of the aging bull market, now approaching nine years since the Great Financial Crisis.

Wednesday's losses left the Dow down 4.6% from it's January all-time highs. It's not exactly a huge obstacle to overcome, but it's beginning to look more like a mountain than a molehill.

Dow Jones Industrial Average February Scorecard:

Date	Close	Gain/Loss	Cum. G/L
2/1/18	26,186.71	+37.32	+37.32
2/2/18	25,520.96	-665.75	-628.43
2/5/18	24,345.75	-1,175.21	-1,803.64
2/6/18	24,912.77	+567.02	-1,236.62
2/7/18	24,893.35	-19.42	-1,256.04
2/8/18	23,860.46	-1,032.89	-2288.93
2/9/18	24,190.90	+330.44	-1958.49
2/12/18	24,601.27	+410.37	-1548.12
2/13/18	24,640.45	+39.18	-1508.94
2/14/18	24,893.49	+253.04	-1255.90
2/15/18	25,200.37	+306.88	-949.02
2/16/18	25,219.38	+19.01	-930.01
2/20/18	24,964.75	-254.63	-1184.64
2/21/18	24,797.78	-166.97	-1351.61
2/22/18	24,962.48	+164.70	-1186.91
2/23/18	25,309.99	+347.51	-839.40
2/26/18	25,709.27	+399.28	-440.12
2/27/18	25,410.03	-299.24	-739.36
2/28/18	25,029.20	-380.83	-1120.19

At the Close, Wednesday, February 28, 2018:
Dow Jones Industrial Average: 25,029.20, -380.83 (-1.50%)
NASDAQ: 7,273.01, -57.35 (-0.78%)
S&P 500: 2,713.83, -30.45 (-1.11%)
NYSE Composite: 12,657.31, -161.91 (-1.26%)

Stocks Stage Strong Rebound To Finish Week Green

While volatility has subsided for the time being, so also has volume, down significantly since the crash-like VIX episode at the beginning of the month. Some may be taking the view that gains on the Dow and other indices are positive, regardless of volume, but the number of shares bought since the early February wash-out are far below those sold during that earlier episode.

Market breadth - gainers versus losers - along with a track of new highs and lows - will continue to help determine short-term direction in the market. Friday's positive close brought the Dow back beyond the 50% Fibonacci retracement though gains for the week were rather modest.

Interest rates remain elevated as compared to a month ago and a year ago, and bond yields will also go a long way toward determining trader conviction. The Dow is the index to watch most closely, because all of the stocks comprising the industrial average pay dividends, some of them at or better than current 10-year treasury yields.

The confounding factor of rising rates and falling stock prices is that dividend yields actually rise in the short term, but that may be seen as a false hope indicator. If companies are not only losing value to stockholders, the real possibility of declining earnings could also erupt into slashing of dividends as companies scramble to horde or save cash.

Considering the massive size of stock repurchases in recent years, the scenario exists that companies could find themselves in a real bind, forced to sell shares back to the public at lower prices than at which they were repurchased, causing an erosion in earnings and a potentially vicious negative feedback loop.

The most savvy investors will be looking for companies which have repurchased inordinate amounts of their own shares and are therefore exposed to a wicked downward price spiral.

If bond yields stabilize at or near current levels (below three percent on the 10-year-note) such a condition will not appear, but stabilizing yields in an environment in which the Fed has telegraphed its intention to raise the federal funds rate and sell (form $20 to $60 billion a month this year) into the market at the same time should - in an ideal, actual free market - cause yields to continue climbing.

Stocks may be nearing a dangerous Rubicon, whereas buyers of bonds should experience bargain prices and healthier yields going forward.

Dow Jones Industrial Average February Scorecard:

Date	Close	Gain/Loss	Cum. G/L
2/1/18	26,186.71	+37.32	+37.32
2/2/18	25,520.96	-665.75	-628.43
2/5/18	24,345.75	-1,175.21	-1,803.64
2/6/18	24,912.77	+567.02	-1,236.62
2/7/18	24,893.35	-19.42	-1,256.04
2/8/18	23,860.46	-1,032.89	-2288.93
2/9/18	24,190.90	+330.44	-1958.49
2/12/18	24,601.27	+410.37	-1548.12
2/13/18	24,640.45	+39.18	-1508.94
2/14/18	24,893.49	+253.04	-1255.90
2/15/18	25,200.37	+306.88	-949.02
2/16/18	25,219.38	+19.01	-930.01
2/20/18	24,964.75	-254.63	-1184.64
2/21/18	24,797.78	-166.97	-1351.61
2/22/18	24,962.48	+164.70	-1186.91
2/23/18	25,309.99	+347.51	-839.40

At the Close, Friday, February 23, 2018:
Dow Jones Industrial Average: 25,309.99, +347.51 (+1.39%)
NASDAQ: 7,337.39, +127.31, (+1.77%)
S&P 500: 2,747.30, +43.34 (+1.60%)
NYSE Composite: 12,884.11, +172.36 (+1.36%)

For the Week:
Dow: +90.61 (+0.36%)
NASDAQ: +97.93 (+1.35%)
S&P 500: +15.08 (+0.55%)
NYSE Composite: +9.75 (+0.08%)

Markets Turn Ugly As Bond Yields Soar in Ground Hog Day Massacre

Even as January's non-farm payroll report painted a rosy employment picture, adding 200,000 jobs for the month, the 10-year note crested over the 2.80% level on Friday, sending stocks into as vicious tailspin in a mid-winter crash.

The nearly 666-point decline on the Dow was the sixth largest one-day point drop in market history, though in percentage terms was the mildest of the top ten, all of which have occurred in the 21st century.

The fact that all of the major point losses happened since 2000 is made obvious by the enormity of the index, still standing at more then 25,000, an epochal figure in market terms. Notably, the Dow Jones Industrial Average first passed the 10,000 mark in 1999, amid the notorious dotcom boom, prior to the dotcom bust, which took a full three-and-a-half years to fully play out.

Friday's drop was the largest since a 634.76-point loss on August 8, 2011 which sent the blue chips down 5.55%, to 10,809.85. Noting the relative percentage puniness of the Ground Hog Day Massacre, it may be wise to expect larger point and percentage losses in the near to mid-range future (three months to one year).

While it may be simplistic to point to the gaudy valuations placed on equities in the current market dynamic, it is nonetheless a significant factor in the current shaky environment and as good a reason to sell out of stocks as any, though the other major catalyst - rising bond yields - provides a more granular perspective.

The long end of the Treasury yield curve was extended on Friday as the 30-year bond smashed through the psychological 3.00% barrier, signaling to long-term investors that the aging bull market in stocks (and bonds) may be coming to a quick conclusion.

Bull and bear markets do not begin nor end in vacuums, which is why this most recent pullback should be regarded as a change of tone in market functioning. Nothing gos on forever, and empirical data suggests that while stocks have enjoyed salad days for years, the general economy and the welfare of millions of Americans has been less than a full meal.

It's easy to look at macro data and conclude that all is well and central banks have the markets and global economies under control, but sometimes one needs to look around and actually see the mountains of debt, stock buybacks, and central bank meddling which have fueled the gigantic recovery and historic stock gains.

Money is undoubtably becoming tighter and the labor market - according to government figures - is straining at full employment, but wages gains have not nearly kept pace with either inflation or taxes for at least the past 15 years. A breaking point is coming, wherein multi-national corporate behemoths are going to have to sacrifice the massive salaries bestowed upon top executives in exchange for pay increases for Mr. and Mrs. America.

With the Federal Reserve ready to hike the federal funds rate another 25 basis points at their upcoming March FOMC rate policy meeting, the world's central bank seeks to create a buffer against an almost certain recession, one which they, by their own reckless actions, will have caused.

If stock declines continue through February, expect the Fed to pause on their quest to raise rates and unload debt at the same time. The outward absurdity of their position is dangerous to the welfare of not only business entities, but individuals and governments as well.

What may have been the most telling circumstance from Friday's demolition of all asset classes, gold and silver also took precipitous drops, action which harkens back to the tumultuous days of the fall of 2008, when precious metals were slammed along with stocks. Notably, it was the metals which recovered first, but under the current conditions of mad money mindlessness, the shiny stuff may be suppressed even further, simply because central banks don't appreciate competition for their various fake currencies by real money.

The era of easy money is ending.

Real assets will endure.

At the Close, Friday, February 2, 2018:
Dow: 25,520.96, -665.75 (-2.54%)
NASDAQ: 7,240.95, -144.92 (-1.96%)
S&P 500: 2,762.13, -59.85 (-2.12%)
NYSE Composite: 13,085.35, -296.62 (-2.22%)

For the Week:
Dow: -1095.75 (-4.12)
NASDAQ: -264.83 (-3.53%)
S&P 500: -110.74 (-3.85%)
NYSE Composite: -551.67 (-4.05%)

Stocks Advance to Start 2018; Gold, Silver Rallies Continue

Stocks ramped higher at the opening of the first trading session of 2018, continuing a trend that carried equity investments to major gains in 2017.

At the same time, gold and silver continued their impressive three-week-old rally. Silver has been the out-performer of the pair, rising from a low of 15.67 per ounce on December 13 to 17.15 as of the close of trading in New York on Tuesday. Gold crested above the sticky $1300 level, finishing the day at 1317.10. It also bottomed out on December 13, dropping below 1240.90 on that date.

While there's certainly nothing unusual about stock gains, the rally in precious metals is raising some eyebrows and prompting talk of future Fed rate hikes and incipient inflation, which has been a false flag for eight years running.

On Wednesday, investors may get some indication of the Fed's intentions. Minutes from the December meeting - at which the Fed raised the federal funds rate for the third time in 2017 - are to be released during the session. Of particular interest is the discussion over rate increases and any dissenting opinion.

The Fed has made it clear that they intend to continue raising rates this year, with four increases of 25 basis points the proposed path. At the same time, the Fed will continue to unwind its bloated balance sheet, shedding billions of dollars worth of treasury bonds and mortgage-backed securities (MBS) and increasing the rate of disposal as the year commences. By October, the Fed is supposed to be dumping as many as $60 billion worth of notes, bills and bonds.

The combination of a general tax cut for consumers, a large tax cut for corporations, rising rates, bond dumping, and an improving economy suggests a formula for inflation, which is generally understood to be good for gold and silver, though the rise in precious metal prices may have more to do with currency debasement than a knee-jerk response to the economic climate.

At the Close, Tuesday, January 2, 2018:
Dow: 24,824.01, +104.79 (+0.42%)
NASDAQ: 7,006.90, +103.51 (+1.50%)
S&P 500 2,695.81, +22.20 (+0.83%)
NYSE Composite: 12,902.72, +93.88 (+0.7329%)

Alabama Turns Blue; Yellen's Final Rate Hike In Focus

Late Tuesday night, the nation learned that Democrat Doug Jones defeated embattled Republican Roy Moore in Alabama's special election for the seat formerly occupied by Jeff Sessions, who vacated when he was promoted to Attorney General by President Trump.

What may very well go unlearned is how much the blatant attacks on Roy Moore by women claiming he sexually assaulted him or otherwise acted in immoral ways swung the election to Jones, who will be the first Democrat elected to the senate from Alabama since sitting senator Richard Shelby won as a Democrat in 1986, but changed parties in 1994.

The election of Jones narrows the Republican majority in the senate to 51-49, a slim edge that puts any future Republican-sponsored legislation in serious jeopardy. That's news that Wall Street should cheer because a lame congress is usually good for business, though it's far too early to say what the overall effect will be.

Looking further out, Democrats are bolstered by the upset victory in usually-red Alabama, believing - with good reason - that they have an opportunity to wrest control of the Senate in the 2018 mid-term elections, the campaigns for which will begin heating up shortly after the holidays.

What's also on the minds of investors is the FOMC policy meeting concluding Wednesday afternoon. The Fed is widely expected to vote to increase the federal funds rate another 25 basis points, to 1.25-1.50%.

As has been the case for the past nine years and the slow parade of 0.25% rate hikes which began in December of 2016, it's unlikely to cause much of a stir on Wall Street.

The Fed has plans for three to four more hikes in 2018, which would put the overnight lending rate at something around two percent. While still historically low, some analysts believe the economy isn't nearly durable enough to maintain a positive bent in the face of higher rates.

The Fed makes its policy statement at 2:00 pm ET Wednesday afternoon.

At the Close, Tuesday, December 12, 2017:
Dow: 24,504.80, +118.77 (+0.49%)
NASDAQ: 6,862.32, -12.76 (-0.19%)
S&P 500: 2,664.11, +4.12 (+0.15%)
NYSE Composite: 12,697.78, +29.57 (+0.23%)

Stocks Hit Roadblock as House Tax Plan Falters in Senate

With Rand Paul absent due to injury, senators John McCain and Ted Cruz already announced no votes, the much-ballyhooed house-Trump tax plan looks to be dead on arrival and investors are not pleased.

Tuesday's action in the markets were punctuated by a pronounced leveling of the yield curve, with 2-10 and 5-30 spreads plumbing new lows.

Just in case the bickering in Washington continues towards implosion - a highly likely event horizon - with Democrats aligning with no-vote Republicans, forward looking people will next look to the upcoming December deadline for the debt ceiling and an anticipated increase to the federal funds rate by the Fed's FOMC.

That's putting pressure on stocks as the market opens Wednesday, though the declines are far from substantial. Also of note is crude oil's decline off recent three-year highs, while precious metals continue to the upside, a split in the commodity complex.

President Trump continues his extensive Pacific tour, in China for the time being, as news flow should slow to a crawl as the week closes in on Friday. With stocks fluctuating, it may be time to seek out undervalued equities, if any are to be found. Stocks remain wildly overpriced with backing by central banks preventing any potential cascading declines.

At the Close, Tuesday, November 7, 2017:
Dow: 23,557.23, +8.81 (+0.04%)
NASDAQ: 6,767.78, -18.65 (-0.27%)
S&P 500: 2,590.64, -0.49 (-0.02%)
NYSE Composite: 12,371.25, -29.68 (-0.24%)

FOMC Leaves Rates Unchanged; Markets Respond Positively

The Federal Reserve's FOMC issued their policy statement at 2:00 pm ET, after a two-day meeting that was widely anticipated to keep the federal funds rate unchanged at 1.00-1.25%.

What the Fed did change in its statement was a few words which piqued the interest of the bullish crowd on Wall Street, saying that the US economy was displaying "solid" growth over the past few months, a change from their use of the word "moderate" or "moderately" to describe US economic growth.

That was enough for investors to snap up a few more mostly overpriced shares on the first day November, except on the NASDAQ, which was the one index to end the session at a loss.

The Fed is prepared to raise interest rates in December, boosting the federal funds rate to 1.25-1.50%, a level still well below what most economists consider normal and sustainable.

At the Close, Wednesday, November 1, 2017:
Dow: 23,435.01, +57.77 (+0.25%)
NASDAQ: 6,716.53, -11.14 (-0.17%)
S&P 500: 2,579.36, +4.10 (+0.16%)
NYSE Composite: 12,362.88, +21.87 (+0.18%)

Counterfeiting and Money Laundering At Its Finest: Fed To Begin Balance Sheet Unwind

If there's one thing everybody can be sure of after today's FOMC rate announcement (spoiler alert: fed funds remain unchanged), it's that the officials at the Federal Reserve will continue to tell everybody that everything is under control, until it's obvious that nothing is under control.

What the Fed will embark upon beginning in October is selling off the assets it purchased during and after the Great Financial Collapse (GFC), thos being primarily mortgage backed securities (MBS, AKA, toxic bond waste) and Treasury bills, notes, and bonds.

Of the two, the treasury issuance will be much less of a problem unloading than the MBS, since treasuries come with an implied guarantee that they're as good as the federal government's full faith and credit promise to repay... with interest and return of principal.

Those toxic mortgage backed securities, which the Fed likely purchased at or near par (100% of value), will be more of a challenge, but, being the central banker to the world, the Fed has nothing about which to worry.
Many of these MBS contain tranches of mortgages minted during the sub-prime crisis. Many of them are worthless. Many more are worth less than half of par value.

But, that does not worry the Federal Reserve, because, since they want to shrink their balance sheet, they can just sell them at whatever price they can get, because they - unlike just about any other entity in the known universe - can just print more money if they need it.

So, $4.4 trillion is going to be wound down to probably under $1 trillion over the course of six to ten years. Some of the mortgage backed securities are performing, many are not. They're in default. Somebody will buy them, ostensibly, because if not, they remain on the Fed's balance sheet - at par value.

It's ludicrous. The Fed will, let's say, sell what they consider to be $500 billion of MBS which is in fact worth maybe, $100 billion. They'll write the $400 billion off their books, in effect, taking a loss. It won't matter. It's gone. It's all just accounting, and, since the Fed doesn't report to the IRS, IMF, BIS, or anybody for that matter, they'll just whistle past the grave of homes lost or stolen by vicious, unscrupulous bankers, who, by the way, will probably be the ones repurchasing - at pennies on the dollar - the very same MBS they unloaded onto the Fed.

And, just for good measure, those very same banks will try to enforce their rights on those bonds, triggering another round of financial shenanigans, this time going after people who thought they bought properties with good title, only to learn that there are claims on them, claims that were hidden in the bowels of the Fed's books for five, six, seven or eight years.

It's the best counterfeiting and money laundering operation that's ever been hatched, and it will all be done out in the open because 99% of the people in the world don't actually understand how it all works.

In the long run, it's all flimflammery of the flimsiest variety, but our glorious central counterfeiters and money launderers just do business that way.

As they say in investing, gambling, and, supposedly, now, banking, "easy come, easy go."

At the close, Wednesday, September 20, 2017:
Dow: 22,412.59, +41.79 (+0.19%)
NASDAQ: 6,456.04, -5.28 (-0.08%)
S&P 500: 2,508.24, +1.59 (+0.06%)
NYSE Composite: 12,147.50, +15.77 (+0.13%)

Mixed Markets are Sending Clear Message

As seems to be the norm lately, the major indices finished in mixed fashion Tuesday, with the NASDAQ and S&P finishing with gains, while the Dow and NYSE Composite took losses.

This repeating pattern may be confusing to some investors, but the trend seems pretty clear: there will be winners and losers on given days, often on the same days, and, while the general economy may have weak and strong sectors, the general trend is higher.

Nothing could be more obvious after chasing stocks since March of '09 has resulted in one of the greatest bull markets of any era. For the most part, it's been easy pickings for fund managers, hedgers (most of whom don't hedge at all), and even individuals investing in the market. An especially accommodative Federal Reserve has seen to that. Even today, with the federal funds rate at 1.00-1.25% - the highest in nine years - by historical standards it's still incredibly low.

Recent talk by Janet Yellen and other Fed members is leading the market to believe that this regime of low interest rates still has room to run. The FOMC has upped the federal funds rate twice already, but appears to be slowing its approach. Many believe they will only raise rates once more this year, likely in December.

Climbing the worry wall with the Fed, most of the Wall Street crowd seems convinced that the central bank has the stock market's back, despite political rhetoric and decades of denial. The Fed is supposed to control monetary policy, but, since the GFC, they certainly don't appear shy about meddling elsewhere, having sloshed bond and stock markets alike with wave after wave of fresh fiat.

Since the money is nothing more than paper with promises, it's what they can and will do. Until further notice, the Fed is in control of all money, yours, ours, theirs, and those of foreigners, dead people, and people not yet born.

It's probably a good thing that there's so much normalcy bias that hardly anyone cares that everything is completely fake.

Like the saying says, "fake it 'til you make it."

At The Close, 7/18/17:
Dow: 21,574.73, -54.99 (-0.25%)
NASDAQ: 6,344.31, +29.87 (0.47%)
S&P 500: 2,460.61, +1.47 (0.06%)
NYSE Composite: 11,877.42, -13.09 (-0.11%)

Stocks Split, NASDAQ Gains, Dow Flat

There is a definite surreal feel to stocks these early days of summer. While the NASDAQ has generally been the whipping boy through the latter stages of June and into July, the reverse was true on Wednesday as traders returned from a truncated long weekend.

The NASDAQ tacked on 40 points, but the other broad measure, the NYSE Composite, fell 26. The Dow was off by one point, while the S&P added three-and-a-half.

While this appears to be sector rotation and stock picking, the unruly movements may portend something more sinister in the near future. It could be nothing, but split decisions on the major indices usually indicate market turmoil, not the calm, placid environment with low VIX which has been a feature of the long bull run since March of 2009.

The VIX has been elevated of late and spiked recently, but hovering around the 11-12 region is nothing alarming. Should the VIX begin to rise day-over-day, worries may emerge and turn reluctant buyers into outright sellers.

Whatever the financial pundits insist about the strength of the economy, there are troubles, as indicated by the FOMC minutes from June which were released on Wednesday. The members were split over inflation and increases in the federal funds rate, a strong indication that the Fed - which has been relied upon excessively to control the economy - may not have the tools with which to battle a recessionary environment, which many believe is overdue.

In any case, this shortened week may not be enough to develop any kind of trend, other than extending the weird trading patterns which are becoming more and more confounding to fundamental analysts.

At the Close, 7/5/17:
Dow: 21,478.17, -1.10 (-0.01%)
NASDAQ: 6,150.86, +40.80 (0.67%)
S&P 500: 2,432.54, +3.53 (0.15%)
NYSE Composite: 11,809.49, -26.23 (-0.22%)

NASDAQ Continues Short-Term Slide; Bond Yields Soar

Happy Independence Day!

While plenty of Americans were celebrating the founding of their nation, drinking cold ones and grilling hot ones, the elitist scum that wants to control everybody's lives couldn't take the hint - and a four-day weekend - returning to the trading desks Monday for another round of Sell That Tech Stock.

The major indices were all rising, with the notable exception of the NASDAQ, upon which the most speculative stocks are traded, closing down just shy of 1/2 percent on the day.

Closing below its 50-day moving average for the third straight session, the NASDAQ is exhibiting a unitary weakness, unshared by its cohorts. The last time the NASDAQ made such a breach was at the very end of December, 2016. Six months have passed since the end-of-year scare, so it is notable, but the index is only down 3.66% since the 6341.70 top on June 9.

The selling seems to not be abating any time soon. The NASDAQ has closed lower 11 of the last 17 sessions, inclusive of the June 9 FAANG debacle.

Obviously, a multi-day decline of less than four percent is alarming to almost nobody, though closer analysis does give one reason to pause and possibly for many to liquidate out of high-multiple, overpriced equities into the safety of dividend-paying plays such as those readily found on the Dow or within the higher echelons of the S&P.

Divergence of the NASDAQ from its close peers bears notice, as has been mentioned here at Money Daily on a number of occasions over the past few weeks. Since it is easily the most bloated of the indices, it is most vulnerable to sprees of selling, or, as may be the case, cyclical rotation.

With that in mind, it may be amusing to some that the Dow posted an all-time intra-day high on Monday, but closed below the record closing high, though that mark may be surpassed on Wednesday, with traders flush with renewed animal spirits.

Otherwise, the eight-year-old bull market seems to be running on fumes, badly in need of something other than fresh fiat from central banks, which has been the primary fuel for the record rise over the long span.

Also worthy of notice is the continued sell-off in the 10-year note, sending yields as high as 2.35. The condition has prevailed since just after the latest interest rate hike on June 14, putting the federal funds rate at a multi-year high of 1.00-1.25%. It's also a marvel that the FOMC of the Fed has changed the game somewhat, targeting the rate in a range rather than offering a solid number. It gives the fakery some wiggle room, though bond brokers seem to be reacting as the Fed would wish, even though rising rates in a declining economy - of which the signs of are lurking everywhere - is a classic misalignment.

Hang on, diversify, or get off. Those are the current choices, though for specs, the last of those choices seems to currently be the most favored plan.

At the Close, 7/3/17:
Dow: 21,479.27, +129.64 (0.61%)
NASDAQ: 6,110.06, -30.36 (-0.49%)
S&P 500: 2,429.01, +5.60 (0.23%)
NYSE Composite: 11,835.72, +74.02 (0.63%)

Mixed Stocks Ahead Of Quad-Witching; Fed Gearing Toward Recession

For the second straight session, stocks closed mixed, with the Dow and S&P finishing in the red while the NASDAQ and NYSE Composite registered marginal gains.

Essentially, markets were flat as the trudge through June continues.

As the week draws to a close, Friday looks to be a troublesome day, owing largely to options expiration and the fact that with the exception of the Dow, the major indices are right back where they began the month.

This condition - known as quadruple witching - may result in increased volatility, and, with prices flat, many stock options and futures may close without redemption, i.e., losses.

Quad witching is the simultaneous expiration of options and futures tied to individual stocks and stock indexes occurring on the last month of each quarter.

While the name may sound frightening, it often is not, especially when stocks are gaining, which, over the past eight years, has been more often than not. This quarter may prove a hurdle too high, sending stocks screaming lower.

Psychologically, losing money on a Friday sends traders home to unhappy weekends with thoughts of carnage fresh in their minds, so Monday's trading may prove more prescient in terms of market direction.

Meanwhile, bonds are telling. The 10-year note slipped to 2.15 on Thursday, with the 30-year bond holding steady at 2.72. The curve has continued to flatten, and that could actually be due to the Fed's tightening. With the overnight federal funds rate at 1.00-1.25 - the highest in nearly a decade - the Fed may be - inadvertently or otherwise - prompting the US economy into a recession.

GDP growth continues to flag and employment is stagnant. Raising rates during a period of slow to no growth makes sense only to Federal Reserve governors or others who bear no consequences for their actions.

Friday's action in the markets deserves close attention.

At the Close, 6/22/17:
Dow: 21,397.29, -12.74 (-0.06%)
NASDAQ 6,236.69, +2.73 (0.04%)
S&P 500 2,434.50, -1.11 (-0.05%)
NYSE Composite: 11,712.52, +16.24 (0.14%)

Stocks May Be Near Peak; Fed Plans Going Up in Flames

It's been a troublesome two weeks for stock jockeys. Even as the Dow and S&P have rocketed to new highs, the shakeout on the NASDAQ last Friday may have been a harbinger of things to come and the die came up snake-eyes on Tuesday as all of the major indices took losses which accelerated into the closing bell.

On the surface, everything seems to be going according to plan. The Fed continues to lie to themselves - and everybody else - that the solvency trap of the GFC of 2007-09 has been permanently put in the rear view mirror and the future offers nothing less than roses and unicorns, otherwise termed "normalcy." Real people know better. While the official unemployment figures approach fantasy levels of sub-four percent, those in and out of the workforce haven't had sustained economic prosperity since prior to 2000. Wages have been absolutely stagnant for the better part of 20 years, not only in the United States, but in established economies around the world.

Since debt had reached unsustainable (read: unpayable) levels during the housing crisis period, all the central bank could do was double down with easy money to banks and connected investors and financiers via QE and ZIRP while the bulk of the population got dosed with 22% interest rates on credit cards, ballooning college tuition costs and, the ultimate teaser, cheap credit on new car loans and leases.

Well, the carousel is slowing to a stop as the world demographic ages not-so-gracefully into their 50s, 60s and 70s, an age at which one does less of everything, including driving, eating, buying, spending, racking up credit card debt and buying bigger houses. This simple fact is probably not lost on the central bankers, but, being mired into last-century Keynesian economic theories and practices, there's little they could do except what they did last week, a desperate attempt to buy more time via higher federal funds rates, a plan that allows a small comfort zone to ease into the next recession, which seems to be gathering momentum daily.

Stocks have never told the entire story of a nation's economy and they won't this time either. While the power elite jiggle their algos to capture the little gains that remain, real estate prices have peaked and are heading lower in many locales, gold, silver, and especially, oil are displaying tendencies one would normally associate with a deflationary economy, which, actually is what has been the experience for much of the past eight years.

Tech stocks have outperformed and rightfully so, but what tech has proven to do time and again is lower costs and prices via efficiencies of scale and market. This time is no different, the recent acquisition of Whole Foods by internet giant, Amazon, offers yet another chilling reminder that the past is pretense and the future will be won by the fastest and most agile companies, individuals and, yes, governments.

The Federal reserve and their crony central bankers across the globe have painted themselves - and everyone else - into a no-win situation, thinking that inflation equals salvation, when, in fact, it is nothing more than gloss. Making matters even more untenable is the idea that the Fed has been trying to induce inflation for the past eight years, without success. They've pumped trillions into the global economy with nil effect because the two things most important to free, functioning markets - price discovery and an honest discounting mechanism - have been missing due to their constant fiddling and control fraud.

Thus, the world approaches another financial Waterloo, more serious than the last, as global credit creation has stalled with growth being nothing more today than amalgamated numbers which are fictitious in the main. The overhang of government debt, pension shortfalls and corporate insouciance have created the perfect scenario for calamity.

If the Fed, ECB, BOJ and other central banks are in search of drama, this summer is likely to be a grand provider of entertainment for all. With stocks overvalued close to the point of absurdity, the assets to be hoarded - if one is in a position to exit the Wall Street casino - are real estate, currencies, gold, silver, tools and machinery.

Since June 9, the NASDAQ has closed negatively six of eight sessions. The Fed finalized their rate hike on the 14th after weeks, if not months, of telegraphing their move. The weakness in the NASDAQ is not a coincidence, but rather, a distinct message from the market.

At The Close, 6/19/17:
Dow: 21,467.14, -61.85 (-0.29%)
NASDAQ: 6,188.03, -50.98 (-0.82%)
S&P 500 2,437.03, -16.43 (-0.67%)
NYSE Composite: 11,738.95, -94.39 (-0.80%)

Fed Raises Rates, Sets Out Asset Disposal Plan

As was widely anticipated, the FOMC of the Federal Reserve voted 8-1 to raise the federal funds overnight lending rate 25 basis points, from 0.75-1.00% to 100-1.25%. Minneapolis Fed President Neel Kashkari was the lone member to vote to leave the rate unchanged. The Fed also raised the prime rate - to which many credit cards, car and mortgage loans are indexed - by 1/4%. The prime - or Primary, in fed-speak - rate now stands at 1.75%.

While the move was telegraphed to the market well in advance, the Fed's decision to release some details of its plan to unwind its enormous balance sheet of over $4.5 trillion, came as something of a shock to investors, characterized by the sullen market reaction.

About the only assets that didn't go down following the Fed's release were Dow and the dollar, the DJIA saved by the usual antics of the altos or the PPT, with the traditional hockey stick save in the last half hour, which also lifted the S&P, the Comp., and NASDAQ from deeper losses.

The dollar index rallied from 96.36 - a seven-month low - earlier in the day, to close at 96.918, a closing loss of just 0.06%. As usual, precious metals were sold down the river in the heavily-rigged futures market. WTI crude oil closed in New York at 44.69, -1.77 (-3.81%). The price is a massive surprise, considering the "summer driving season" has begun. However, the glut of crude on world markets continues to depress prices. Consumers have not yet seen the result at the gas pump, where prices have been relatively stable, despite oil's recent fall from about $52 to the mid-40s.

As usual, the day following the Fed rate decision will offer more clarity on stock direction.

The Fed laid out plans to wind down its multi-trillion-dollar balance sheet, gradually reducing its holdings of Treasuries and agency securities, by decreasing the Fed’s reinvestment of principal payments. Payments will only be reinvested when they exceed preset and self-administered caps, which start out at $6 billion per month for Treasuries and $4 billion per month for agency and mortgage-backed securities.

Since the Fed sopped up literally trillions worth of garbage MBS and dodgy treasuries during the aftermath of the GFC, the effect of their balance sheet unwind will be an attempt to allow market normalization with the Fed out of the way. While this tactic has been the subject of great scrutiny, without a "buyer of last resort" such as the Federal Reserve, the concern is that interest rates will spiral out of control with inadequate buying interest depressing prices and thus, raising yields beyond reasonable levels.

At present, this has not occurred, In fact, the benchmark 10-year note was exceptionally depressed, closing at a yield of 2.138, but, the Fed hasn't actually begun its unwinding, only mentioned how they plan to achieve their goals.

In an addendum to its statement, the Fed stated,

“The Committee currently anticipates reducing the quantity of supply of reserve balances, over time, to a level appreciably below that seen in recent years but larger than before the financial crisis; the level will reflect the banking system’s demand for reserve balances.”

As the ultimate arbiter of rates and ostensibly in control of all things financial, the Fed is hopeful that the rest of the world will go along with their grand plan.

According to the caps the Fed has just announced, it's going to be a long time before their balance sheet regains some semblance of normalcy. At a rate of $10 billion a month, the Fed will only be able to reduce the bloat by $120 billion a year. At that rate, getting their carried balance down to $2.5 billion would take roughly 20 years.

We can hardly wait.

At the Close, 6/14/17:
Dow: 21,374.56, +46.09 (0.22%)
NASDAQ: 6,194.89, -25.48 (-0.41%)
S&P 500: 2,437.92, -2.43 (-0.10%)
NYSE Composite: 11,779.81, -16.98 (-0.14%)

Stocks Up for the Week; Murky Outlook Going Forward

The last full week of May was a solid one for stock pickers, with all the major averages posting excellent weekly gains, despite a somewhat subdued session Friday.

The NASDAQ and S&P notched new all-time highs a couple of times, though the question remains as to just how much higher stocks can ascend given the weakness in macro data and tension in geopolitics.

The start of June is generally a quiet time for markets, but, with central banks backstopping any selloff with unlimited funding, the fun may last some time longer. June's FOMC meeting has been heralded as one in which the Fed may raise the federal funds rate to 1.00-1.25%, which would be a high-water mark since the GFC of 2008-09.

Money Daily disputes to contention of many analysts - 83% of which see a June rate hike - that a rate hike is imminent, due to glaringly obvious poor results in housing, personal income and spending, and industrial production, to name just a few.

Futures are pointing to a negative open in this holiday-shortened week.

At The Close, 5/26/17:
Dow: 21,080.28, -2.67 (-0.01%)
NASDAQ 6,210.19, +4.94 (0.08%)
S&P 500: 2,415.82, +0.75 (0.03%)
NYSE Composite: 11,631.87, -7.43 (-0.06%)

For the week:
Dow: +275.44 (1.32%)
NASDAQ: +126.49 (2.08%)
S&P 500: +34.09 (1.43%)
NYSE Composite: +89.18 (0.77%)

Despite Friday's Gains, Stocks Finish Week Lower; About To Get A Wedgie?

Major US equity indices finished the week strong, with solid gains across all, but the weekly view gives another picture, despite the NASDAQ diverging radically from the others.

Looking especially at the NYSE Composite, the broadest index available (also the one nobody ever mentions) a rising wedge pattern appears from a May (11,254.87) 2015 top, to a bottom (8937.99) in January 2016, to this week's close at 11,542.69. Though the overall gain from the bottom last January is massive - more than 2100 points), the overall increase from the top in 2015 is fewer than 300 points, a return of less than three percent over a two-year span.

Apparently, this is why no self-serving analyst or financial news commentator ever speaks of the "Comp" in glowing terms because it reveals the truth behind this runaway bull market: that it has been concentrated among a few select stocks, leaving the bulk of issues behind, in much the same manner as wealth is distributed among individuals. Most of the money goes to the top 5%, the rest lag behind.

None of the other indices present such a pattern. They are all higher by double digits over the same period. Thus, the market shows a heavy weight toward highly speculative tech stocks in the NASDAQ, dividend-payers in the DOW, and, naturally, the 500 largest US-based companies (S&P 500).

Breadth being a hidden issue, this central bank campaign of feeding the leaders should continue as we head into what are traditionally the weakest months of trading (i.e., sell in May and go away). Internal squabbling among the FOMC board members may address this issue as the approach to an expected rate hike increase in June quickens.

The Fed has more or less signaled three rate hikes this year, though this second of the proposed three may have to hold off until September, after second quarter GDP and earnings are revealed in the latter half of July and into August. May non-farm employment - which will be announced prior to the FOMC June meeting - will also have significant impact.

After two consecutive down weeks in the S&P, Comp., and Dow, the Fed, and the markets, can ill afford another week of losses, so close attention is warranted. This week may mark a true turning point, if there ever is one to be had.

At the Close, 5/19/17:
Dow: 20,804.84, +141.82 (0.69%)
NASDAQ: 6,083.70, +28.57 (0.47%)
S&P 500: 2,381.73 +16.01 (0.68%)
NYSE Composite: 11,542.69, +108.62 (0.95%)

For the Week:
Dow: -91.77 (-0.44%)
NASDAQ: -37.53 (-0.61%)
S&P 500: -9.17 (-0.38%)
NYSE Composite: -4.57 (-0.04)

Stocks Surge, But Indecision Remains

This market cant seem to make up its mind.

At least that's the impression from the past few days of trading - or even the past eight weeks - which has seen the major averages whipsawed by varying reports of Trump administration plans, key industry data, jobless claims, and the all-important stance by the Federal Reserve on raising the federal funds rate.

On that last point, the recent March non-farm payroll data should have put the kibosh on any rate hikes until at least July, and that's the thinking of most of the Wall Street analysts, who actually get it right some of the time.

With just Friday remaining, unless stocks are donw close to one percent on the day, the week will finish positive, though it would be only the fourth positive week in the last eight, another sign of indecision.

At the Close, Thursday, April 20, 2017:
Dow: 20,578.71, +174.22 (0.85%)
NASDAQ: 5,916.78, +53.74 (0.92%)
S&P 500: 2,355.84, +17.67 (0.76%)
NYSE Composite: 11,427.73, +85.31 (0.75%)

Stocks Stalled, Bonds Subdued, April Tax Deadline Extended

As the first week of April unfolds, there appears to be no stimulating feature to the equity markets overall, as stocks barely budged on Monday and are stalled near the UNCH line again on Tuesday.

It could be that there aren't many good values out there, or that the investor class is waiting on the political class to do something... anything, to get the economy moving, though that seems a long shot, as Democrats in the House and Senate seem to want nothing more than to waste everybody's time with a continuing assault - using fake news and innuendo as their battle-axes - against Presidnet Trump and any Republican agenda.

That particular skirmish aside, the lack of movement is stocks is probably due to the age-old waiting game, which is first and foremost awaiting the March non-farm payroll data on Friday, and, after that, a slew of earnings reports which will begin to flow to the street beginning next week.

Until such time, there simply isn't much to get excited about, except maybe that all Americans will have an additional three days to file their 2016 income taxes. Due to April 15 being on a Saturday and the Washington D.C. Emancipation Day holiday being observed on April 17 instead of April 16, 2017, Tax Day is on the following Tuesday, April 18.

OK, got that? Good.

In the meantime, bond traders are acting as though the Federal Reserve will never raise the federal funds rate again in their lifetimes, with the 10-year note sinking to a yield of just 2.35%.

The 10-year has gotten as high as 2.60% this year, but quickly retreated from that March 12 high and has remained subdued for most of the year, thus far. That could change, as the Fed has euphemistically suggested that more rate hikes would be forthcoming this year -- as many as three more.

We'll see about that.

Fed Raises Rates, Wall Street Doesn't Blink

As the Federal Reserve raised the federal funds rate to 0.75-1.00% on Wednesday, investors and traders barely took notice of the highly-anticipated move, sending stocks higher on the day and taking a basically taking the day off Thursday. Stocks were flat-lined at the close.

All in seems to be the order of the day, so long as the Fed isn't too interested in raising rates again too soon.

More on this and other important topics in the Money Daily weekend recap, Friday afternoon and Saturday.

For now, we're just happy to have survived the great blizzard of 2017. Lots of snow, lots of wind, not much fun, but, happily, it's over.

At the close, 3.16.17:
Dow: 20,934.55 -15.55 (-0.07%)
NASDAQ: 5,900.76, 0.71 (0.01%)
S&P 500: 2,381.38, -3.88 (-0.16%)
NYSE Composite: 11,600.24, 9.93 (0.09%)

Despite Near-Surety Of Fed Rate Hike, Stocks Gain To Close Out Week

Editor's Note: This weekend edition may be the last Money Daily posting until Thursday of this week as incredibly bad weather has persisted in our neck of the woods, a recent windstorm knocking out power to over a quarter million of our neighbors immediately to the West. Bone-chilling temperatures and a major snowstorm are predicted for the early part of this coming week. Money Daily will return to a regular daily posting once weather conditions permit.

Investors took Friday's non-farm payroll (NFP) report of 235,000 net new jobs added to the US economy in February as genuine good news, despite the nearly foregone conclusion that the robust figure would make the case for a federal funds rate increase by the FOMC of the Federal Reserve a fait acommpli. The gains snapped a recent string of losing sessions on the major indices.

In reality, the idea of a rate increase of 25 basis points shouldn't be worrying to anybody, especially with the federal funds overnight rate remaining at or below zero for 14 of the past 17 years and the last eight straight.

A 0.25% increase would move the rate to 0.75-1.00, a number that the Fed has been apprehensive of since the Great Financial Crisis of 2008. Since then, they and their fellow travelers in central banking have added trillions in liquidity to the fractured system, saving it from complete collapse.

In the process, however, they have managed to dilute the currencies of most nations, notably those of Japan and the European Union. While rate increases by the US may be a panacea, they could impact other nationas and the global economy in a variety of ways. As the last crisis was liquidity-driven, expect any future crises to be based upon sovereign solvency or faith in national currencies, all of which are backed by nothing more than the faith and (ahem) credit of the issuing country.

The globe is one giant Ponzi scheme, in which everybody buys each others currencies, hoping beyond hope that nobody defaults in a messy manner. Thus far, central banking institutions have managed to avoid large-scale default, but there's no guarantee that such benign conditions will avail themselves indefinitely.

On the other hand, with the ability to conjure dollars, euros and yen out of thin air at their whim, the central bankers are holding all the cards, even though they're bluffing into their sleeves. The system may fail at some point, but it's more likely that gradualism will prevail, making the case that the most important aspect of one's finances may not be generation of income or growth, but preservation of what one already owns.

At The Close, Friday, March 9, 2017:
Dow: 20,902.98, +44.79 (0.21%)
NASDAQ: 5,861.73, +22.92 (0.39%)
S&P 500: 2,372.60, +7.73 (0.33%)
NYSE Composite: 11,500.76, +43.12 (0.38%)

For the Week:
Dow: -102.73 (-0.49%)
NASDAQ: -9.03 (-0.15%)
S&P 500: -10.52 (-0.44%)
NYSE Composite: -97.61 (-0.84%)