Control Panel: Is the SPX trend established?

All METARs know that the stock market has volatility. The ups and downs can be minor (noise) or major. Trends can last a long time. The question for investors is: how can we decide whether a market move is a long-term trend or just noise?

Mungofitch analyzed decades of stock market moves and determined that 99 days of new highs from the S&P500 was likely to continue to make new highs. This was the origin of the “mungofitch 99 day rule.”

It has been a rather eventful year since the SPX made its major low on October 14, 2022. In August 2023, the SPX began to decline as the market finally began to believe that the Federal Reserve would increase the fed funds rate until inflation abated to the Fed’s target. On October 27, 2023, the SPX made a short-term low and has been rising ever since. This has been 25 trading days to date.

While off the most extreme bubble high, the CAPE of the SPX is still double the historic median. This is clearly still a bubble.

In October, the Consumer Price Index for All Urban Consumers was unchanged, seasonally adjusted, and rose 3.2 percent over the last 12 months, not seasonally adjusted. The index for all items less food and energy increased 0.2 percent in October (SA); up 4.0 percent over the year (NSA).

The PCE price index (which is preferred by the Fed) increased less than 0.1 percent. Excluding food and energy, the PCE price index increased 0.2 percent. Real DPI increased 0.3 percent in October and real PCE increased 0.2 percent; goods increased 0.1 percent and services increased 0.2 percent.

The Fed did not raise the fed funds rate between August and November 2023 but made it clear that it will resume raising if inflation starts increasing. The current fed funds rate is 5.25 - 5.5%. The options market bets that the rate will stay the same until March 2024 when it has a 55% chance to be cut to 5%.

The real question is whether the Fed’s rate campaign will cause a recession or whether the economy will remain relatively strong for a soft landing.

The Atlanta Fed’s GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2023 is 1.2 percent on December 1, down from 1.8 percent on November 30. After this morning’s construction spending release from the US Census Bureau and the Manufacturing ISM Report On Business from the Institute for Supply Management, the nowcasts of fourth-quarter real personal consumption expenditures growth and fourth-quarter real gross private domestic investment growth decreased from 2.7 percent and -2.7 percent, respectively, to 1.8 percent and -3.2 percent.

That is a big decline from the 4% GDP growth in 3Q23.

The Manufacturing PMI® registered 46.7 percent in November, unchanged from the 46.7 percent recorded in October. The overall economy continued in contraction for a second month after one month of weak expansion preceded by nine months of contraction and a 30-month period of expansion before that. (A Manufacturing PMI® above 48.7 percent, over a period of time, generally indicates an expansion of the overall economy.)

Economic activity in the services sector expanded in October for the 10th consecutive month as the Services PMI® registered 51.8 percent, say the nation’s purchasing and supply executives in the latest Services ISM® Report On Business ®. The services sector is much larger than the manufacturing sector and is also labor-intensive. This provides support for employment.

How Rising Profits Could Prevent the Economy From Faltering

U.S. corporate coffers are growing again—making a recession less likely

By Justin Lahart, The Wall Street Journal, Dec. 3, 2023

The profit rebound has been more than evident at big public companies. With most results in, earnings per share at companies in the S&P 500 look to have risen 7.1% in the third quarter from a year earlier, according to London Stock Exchange Group, after slipping 2.8% in the second. The profit gains look likely to continue: Analysts, whose estimates tend to be too dour this far along into a quarter, expect S&P 500 earnings to grow by 5.2% in the fourth quarter… [end quote]

The Control Panel is bullish for both stocks and bonds. Every stock-related chart is bullish. The Treasury yield curve continues to drop. The Fear & Greed Index is in Greed.

The USD is dropping. Gold, silver and copper are rising. Oil has stabilized while natgas is falling.

The METAR for next week is sunny. I believe that a year-end rally is in the cards. This may also be the start of a true, long-lasting SPX bull market trend. But it’s hard to say for sure because the trend has lasted much less than 99 days, the CAPE is still in a bubble, and the economy is slowing and is perilously close to falling into recession.



Commercial RE is done for. We will have a mixed shallow recession. The money supply is going to drop regardless at this point of any further FED actions. I think the FED will hold steady.

The wealth effect will go out of the equity market.