Stock Selling Pressures Emerge As Bonds Present A Developing Skeptical Outlook

So much for summer doldrums.

Yes, that was the opening line of yesterday's post.

It's that kind of market, one that can turn on a dime, or a tweet, or, maybe even a look, a glance, a suggestion.

This is not for market neophytes, who will get skewered royally if they attempt to play and are not prepared to suffer small losses should positions prove unfavorable. Because small losses, left unaddressed, usually lead to larger losses, it's important to monitor all trades closely. Similarly, profits may be fleeting and momentary. It may be better to take short term gains under these conditions, than wait out months of bumps and grinds in expectation of sustained profits.

Current market conditions are strung out like an addict needing a fix. Any twitch can set it off, as evidenced on Wednesday, as short term euphoria faded into tight panic overnight.

Call it Trump-enomics, trade sabre-rattling, currency collapse, kind dollar, or whatever you like, what is underway is nothing less than a massive reordering of priorities. From individual well-being to international survival, nothing is off the table.

While stocks continue to zig-zag - the Dow fell once again into negative territory for the year - bonds seemingly know only one direction, toward the middle, as yield spreads on treasuries keep tightening.

Since the Fed has raised rates six times since December 2015, the yield on longer-dated maturities has not moved in tandem. In a growing, vibrant economy, yields on 10-year and 30-year bonds would be spiking higher in reaction to higher short-term rates, but presently, they are resistant. Thus, short-term rates are rising faster than longer-term, making it difficult for financial institutions to make money since they depend on the spread, i.e., borrowing short-term to lend long-term.

Simply put, it's tough to make much profit on a one percent (or less) margin.

This dynamic has and will continue to scare equity market participants, whose fear is that their investments will rise only very gradually, if at all. The longer-dated treasuries serve as a hedge against the inherent risk in stocks. Even though they may not keep pace with inflation, the risk of losing money is nearly nil.

There are, of course, many more forces at play, including devastated markets in Japan and Europe, which recently (and presently) toyed with negative interest rates, forcing all yields lower. Thus, the US yields look generous by comparison with limited risk exposure.

For a more detailed analysis of interest rates and the dangers of an inverted yield curve, Investopedia offers a reasonable explanation, here.

A simplified approach may be developing as a new norm: minimize risk, accept lower returns, preserve capital rather than seeking bold - and thus, risky - profits.

The bond market, which is much larger than the equity market, often serves as a lid on runaway speculation in stocks. Currently, the lid is being lowered, slowly, but steadily.

Dow Jones Industrial Average July Scorecard:

Date	Close	Gain/Loss	Cum. G/L
7/2/18	24,307.18	+35.77	+35.77
7/3/18	24,174.82	-132.36	-96.59
7/5/18	24,345.44	+181.92	+85.33
7/6/18	24,456.48	+99.74	+185.07
7/9/18	24,776.59	+320.11	+505.18
7/10/18	24,919.66	+143.07	+648.25
7/11/18	24,700.45	-219.21	+429.04

At the Close, Wednesday, July 11, 2018:
Dow Jones Industrial Average: 24,700.45, -219.21 (-0.88%)
NASDAQ: 7,716.61, -42.59 (-0.55%)
S&P 500: 2,774.02, -19.82 (-0.71%)
NYSE Composite: 12,681.59, -133.05 (-1.04%)

Stock Investors Taking Advantage Of Calm Conditions

So much for summer doldrums.

In the first six trading days of July, the Dow Industrials have tacked on a hefty 648 points, leading many to begin believing that the minor correction from February was just that, minor, and now stocks are ready to be bought again nilly-willy. There has been only one negative close for the Dow this month and that came on the shortened session on the Tuesday prior to the Independence Day holiday.

For the past few days, an odd dynamic has taken place, with the Dow leading the other indices - especially out-performing the NASDAQ - which may be signaling a reversal from the prior three months. This change probably has little to do with the recent favorite whipping-boy: tariffs, but, there is the possibility that after closer analysis, many of the Dow stocks may be in position to benefit.

This is at least what seems to be occurring, though another possibility is that NASDAQ stocks have been overbought while the Dow was being oversold, thus the change in positions.

Whatever the case, investors in blue chips have been enjoying excellent gains and nobody is going to complain about that. With earnings about to take center stage in the Wall Street drama, Dow stocks may continue to rise, given optimistic projections for second quarter GDP and the part Dow stocks have played in this mini-rally.

Realistically, geopolitics have calmed for the time being, though under the surface there are relevant issues, not the least of which being England's struggle with post-Brexit negotiations, which has left Prime Minister Teresa May in quite the quandary.

May is promising a "soft Brexit" plan, due to be announced on Thursday via a white paper outlining the plan. Whatever May offers is sure to anger many and placate few, as nobody appears to be happy with half-measures, which has been the norm since the vote to leave the European Union two years ago. Not much has changed on the island nation and the process has been slow, disorderly, and generally lacking direction.

Look for the story to take on new life later in the week.

Back in the United States, President Trump seems to have thwarted almost all of his opponents, especially the ill-concieved Mueller investigation into Russia collusion in the 2016 presidential election. The entire affair is nothing but a complete farce, and the tide has turned against the special prosecutor and any friends he many have left in the deep state, liberal, leftist, obstructionist Democrats in congress.

With mid-term elections less than four months ahead, desperate Democrats have tried every conceivable attack on Trump and have come up empty-handed, even with a compliant press corps which seems also intent on demonizing Mr. Trump.

Meanwhile, some tariffs have already gone into effect, though the real implications are unlikely to be felt for some time, giving traders, fund managers and speculators ample time to play whatever games they feel fit to capture gains in this see-saw market.

If there is trouble ahead, it hasn't yet materialized, as unemployment remains low and the economy continues to show nascent signs of improvement. Inflation also has not truly had much effect, though the Federal Reserve's simultaneous deleveraging and rate hiking could cause significant problems.

For now, the market is maintaining a good demeanor and bonds are behaving, despite the ever-flattening yield curve. 2s-10s persist at 28 basis points, while 5s-10s and 10s-30s each sport a decade-low 10 basis point spread.

The summer may turn out to be one of pleasant recreation, though veteran traders and market analysts should be always vigilant for abrupt changes in sentiment.

Right now, it's smooth sailing and everybody's along for the ride.

Dow Jones Industrial Average July Scorecard:

Date	Close	Gain/Loss	Cum. G/L
7/2/18	24,307.18	+35.77	+35.77
7/3/18	24,174.82	-132.36	-96.59
7/5/18	24,345.44	+181.92	+85.33
7/6/18	24,456.48	+99.74	+185.07
7/9/18	24,776.59	+320.11	+505.18
7/10/18	24,919.66	+143.07	+648.25

At the Close, Tuesday, July 10, 2018:
Dow Jones Industrial Average: 24,919.66, +143.07 (+0.58%)
NASDAQ: 7,759.20, +3.00 (+0.04%)
S&P 500: 2,793.84, +9.67 (+0.35%)
NYSE Composite: 12,814.64, +37.71 (+0.30%)

No News Sends Stocks Soaring

Animal spirits were alive and well on Wall Street to open the week, putting aside all the phony fears over President Trump's trade war with China and the rest of the known world.

Shrugging and buying has become a trademark of the easy money days since the crash in 2008 and recovered which started in 2009. Monday's buying spree comes at the tail end of the second longest bull market in history, and is likely a sign that the market is nearing exhaustion rather than a sign that everything is going swimmingly.

There was no noteworthy news to bring out the buyers.

Oddly enough it was the Dow Jones Industrial Average that led the way, posting its best gain in month. On June 6, the Dow ramped higher by +346.41.

Even odder, the three other indices posted identical gains of 0.88%.

Oddities will continue as traders pore over a flood of second quarter earnings reports the next few weeks.

Dow Jones Industrial Average July Scorecard:

Date	Close	Gain/Loss	Cum. G/L
7/2/18	24,307.18	+35.77	+35.77
7/3/18	24,174.82	-132.36	-96.59
7/5/18	24,345.44	+181.92	+85.33
7/6/18	24,456.48	+99.74	+185.07
7/9/18	24,776.59	+320.11	+505.18

At the Close, Monday, July 9, 2018:
Dow Jones Industrial Average: 24,776.59, +320.11 (+1.31%)
NASDAQ: 7,756.20, +67.81 (+0.88%)
S&P 500: 2,784.17, +24.35 (+0.88%)
NYSE Composite: 12,776.92, +112.04 (+0.88%)

Weekend Wrap: Stocks Celebrate The 4th With Solid Gains

Stocks bubbled up after the BLS reported June job gains of 213,000 in the non-farm payroll report, though the official unemployment rate rose to four percent as more people entered the workforce.

The increase, being more than the expected 195,000, was a positive spur to trading instincts and helped end one of the better weeks of the year, with all four major indices posting gains for the day and the week.

Fears of an extended trade war with China were put aside for the time being. With the nation basking in the glow of an Independence Day week, only one down day was recorded, that being Tuesday's shortened session, which seemed more an adjustment to price levels rather than a trend-starting event.

Earnings reports for the second quarter will soon be the talk of the town and with that narrative taking precedence, there's a very good chance that stocks may see some solid support for the rest of the month.

The Dow is already ahead for July, despite still being more than 2000 points from the January all-time highs. With trading volumes down, it won't take much tome markets and the mood has shifted to a summery, feeling-good groove.

Bonds being moribund, stocks will bear some near term interest. The longer term still appears shaky or shady on a fundamental basis.

Dow Jones Industrial Average July Scorecard:

Date	Close	Gain/Loss	Cum. G/L
7/2/18	24,307.18	+35.77	+35.77
7/3/18	24,174.82	-132.36	-96.59
7/5/18	24,345.44	+181.92	+85.33
7/6/18	24,456.48	+99.74	+185.07

At the Close, Friday, July 6, 2018:
Dow Jones Industrial Average: 24,456.48, +99.74 (+0.41%)
NASDAQ: 7,688.39, +101.96 (+1.34%)
S&P 500: 2,759.82, +23.21 (+0.85%)
NYSE Composite: 12,664.88, +79.67 (+0.63%)

For the Week:
Dow: +185.07 (+0.76%)
NASDAQ: +178.08 (+2.37%)
S&P 500: +41.45 (+1.52%)
NYSE Composite: +160.63 (+1.28%)

Stocks, Bonds In Game Of Chicken With Fed, Economy

Who will blink first?

That's the essential question, especially whenever stocks advance in the face of disappointing news or data.

Just today, basking in the afterglow of Independence Day, the data was far from convincing of the official narrative that the economy is clicking, unemployment is low and happy days for all are just over the horizon.

Unemployment claims were higher than expected. For the last week of June, 231,000 were receiving government benefits. The low number of unemployment claims is partially due to a number of factors the government number crunchers don't readily report. First, there are no more extended claims. In most states, it's 26 weeks. That's it. Find a job in six months or be relegated to the "out of workforce" brigade, which are not counted in the official figures.

Additionally, with so many baby boomers retiring (supposedly at a rate of 10,000 a day, though it's likely much lower), there should be jobs aplenty. However, many of those older folks are not being replaced. Corporations are saving through attrition, or, at best, hiring replacements at much lower wages with fewer benefits.

Then there's job growth. The numbers delivered by ADP this morning were uninspiring. Private employers added 177,000 to their payrolls, well below the expected 190,000. Prior to the opening bell on Friday, the BLS releases the non-farm payroll data for June, which is expected to come in at around 195,000 new jobs, but whether the numbers match expectations or not, almost anybody with a functioning brain knows that the data is largely fudged and massaged and generally not reflective of local conditions.

Thus, the wizards on Wall Street are playing chicken in the market, and well they should. The Wall Street elite have the ability to hedge, shed positions before the general public, and make moves faster than anybody else, especially the home-gaming day-traders. They are selling when everyone else is buying and vice versa. They're pros. That's why they're making mega-bucks on Wall Street and you're not.

The Federal Reserve released the minutes from June's FOMC meeting at 2:00 today, which initially sent stocks down, but they recovered to close near their highs. The minutes sent mixed signals, but little to suggest that the Fed would not raise the federal funds rate by another 25 basis points in September, despite a flattening treasury yield curve, which is a harbinger of an economic downturn.

Again, the market pros played chicken and bid up stocks in the face of the Fed minutes which revealed little beyond what was already known.

Bond yields edged slightly higher, except for the 30-year, which shed one basis point to 2.95%. Spreads on the 2s-10s dipped to 29 basis points, and the 2s-30s dropped to 40 bips. Bond traders are staring directly at a flatline instead of a curve, with potential for inversion a real concern. They're selling the short end, buying the long, challenging the Fed to tighten twice more this year, a move that almost certainly would send wild signals through the trading community.

If all of that isn't enough to churn the stomach, Trump's China tariffs go into effect at midnight EDT.

Chicken. It's not what's for dinner. It's what Wall Street plays these days.

Dow Jones Industrial Average July Scorecard:

Date	Close	Gain/Loss	Cum. G/L
7/2/18	24,307.18	+35.77	+35.77
7/3/18	24,174.82	-132.36	-96.59
7/5/18	24,345.44	+181.92	+85.33

At the Close, Thursday, July 5, 2018:
Dow Jones Industrial Average: 24,345.44, +181.92 (+0.71%)
NASDAQ: 7,579.59, +83.75 (+1.03%)
S&P 500: 2,735.07, +21.85 (+0.81%)
NYSE Composite: 12,564.92, +90.53 (+0.56%)