Control Panel: Factors undermining stocks

Both stock and bond prices have been falling during September. (Yields are rising since prices and yields move opposite each other.)

Various factors have been undermining stock prices.

Why High Interest Rates and Energy Prices Are Stressing the Economy

Treasury rates and oil and gasoline prices have been increasing, putting the Fed in a difficult spot, our columnist says.
By Jeff Sommer, The New York Times, Sept. 29, 2023

Interest rates are rising. Oil prices are climbing. Either alone might be difficult to swallow.

But mixing them creates a nasty concoction — one that is distasteful for consumers, off-putting for most investors and dangerous for the economy…Add the strong dollar, which depresses foreign earnings for U.S. companies, “and you’ve got a trifecta that is very difficult for the economy to handle…”

With the new appeal of those higher bond yields, and the threat to corporate profits posed by higher borrowing costs, the yield surge has been disrupting the stock and bond markets… [end quote]

A New Interest-Rate Regime Has Begun. These Are the Market’s Winners and Losers.

Bond prices, the Magnificent Seven and emerging markets are under pressure

By Hardika Singh, The Wall Street Journal, Updated Oct. 1, 2023

Investors are struggling to make peace with a new reality: Interest rates are likely to remain higher for longer. …

The “Magnificent Seven” are Apple,
Microsoft, Alphabet, Amazon.com, Nvidia, Tesla and Meta Platforms. They were responsible for virtually all of the stock market’s advance at one point this spring. That trade is now showing cracks, while investors look with renewed skepticism at the hefty valuations commanded by the market leaders.

Government-bond yields, which move inversely to prices, started climbing again in July when a flurry of stronger-than-expected data persuaded investors that the Fed would have to keep interest rates elevated to cool the economy. Then in August, the government said it would sell many more Treasurys in coming months than investors expected, extending the summer losses and forcing traders to reassess their outlook for the market…

Fewer than 30 stocks in the S&P 500 have a dividend yield above that on the six-month Treasury bill… [end quote]

The Fear & Greed Index is in Fear. The trade is neutral, neither risk-on nor risk-off. Oil is rising strongly along with the USD. The CAPE is still in bubble territory.

Despite rising yields along the entire Treasury yield curve, financial stress is very low. There’s no sign of a financial crisis brewing.

The METAR for next week is drizzly. Expect stock and bond prices to fall, though not strongly.

12 Likes

Regardless of the direction of the markets for simply one week this has been your best, most straightforward, and in some regards simplest forecast.

The macro events of high yields do not have to be on schedule. They will materialize either way.

By the time these “news’” are printed they are “history.” A large number of August and September falling stocks are showing signs of recovery.

Watching stock charts on a weekly basis is part of the process selling covered calls. After the Covered Call Selector picks the top choices the next step is to check the earnings date and a six month price chart.

It could be a bull trap but it’s worth trading.

The Captain

3 Likes

Shouldn’t that be called a bear trap, i.e., a trap in a bear market?

DB2

I have to admit that the terms are confusing which is the reason I provided the link to the Schwab Brokerage. Are there any experts in the house?

The market rebounds, bulls buy and get trapped by the fake rebound = bull trap?

The Captain

1 Like

No expert here it is only TA.

The bear market is ensuing. Means Schwab sees downward pressure. When charts buck that for the bulls to rush in it becomes a bull trap as the market drops later.

@captainccs Your chart shows a gap. Gaps close. That said I see a gap towards the top that won’t close till sometime next year in all likelihood.

1 Like