Control Panel: Will stock rebound have legs? FOMO?

Investment Analysis Clubs Macro Economic Trends and Risks
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Is the Stock Market Rally About to Rev Up?

Investors are embracing stocks and eyeing a year-end rally in markets

By

Gunjan Banerji, The Wall Street Journal, Nov. 12, 2023

A lightning-fast rebound has driven the S&P 500 up in nine of the past 10 sessions and 7.2% over the past two weeks, the best such stretch of the year. Now, many investors are betting the rally has legs…

Bullish bets tied to the S&P 500 in the options market to profit from any bigger gains that might come through the end of the year hit one of the highest levels on record in November…

Meanwhile, bearish bets by hedge funds and other money managers against the S&P 500 recently fell to the lowest level since June 2022, according to data from the Commodity Futures Trading Commission. Bets against Nasdaq have slumped to the lowest level since March. … [end quote]

The reasons given are pretty weak, in my opinion. The Treasury predicting slightly lower debt issuance, a possible retreat in bond yields and the Federal Reserve pausing the rise in the fed funds rate.

While a 2-week bounce in the stock market is nice, it’s just as likely that it’s noise. Two weeks does not establish a trend. We’ve seen this many times before.

Treasury prices are also rising (which means that their yields are falling, since bond prices move inversely to yields). The Treasury yield curve has dropped over the past couple of weeks.

The trade has suddenly turned to risk-on. Stocks and junk bonds are rising faster than Treasury prices.

The Fear & Greed Index is in Fear but close to Neutral. The details of the calculation are interesting. Momentum has moved into Greed since the S&P 500 has risen above its 125-day moving average. Stock Price Strength is in Extreme Fear since there are more stocks on the NYSE at 52-week lows than at 52-week highs. The amount, or volume, of shares on the NYSE that are rising compared to the number of shares that are falling is low which is bearish.

Inflation expectations are rising. This implies higher future bond rates.

As we saw in last week’s Control Panel, the economy is beginning to slow. However, Personal Consumption Expenditures are still rising strongly. The all-important holiday shopping season will begin in just a couple of weeks. Higher interest rates are already impacting housing and vehicle purchases. It’s not clear yet whether smaller purchases will also be impacted.

Is the market headed for a year-end rally? It’s not clear yet. But let’s be optimistic anyway.

The METAR for next week is sunny. I think that Wall Street is tired of gloom and may want to party.

Wendy

https://www.cnn.com/markets/fear-and-greed

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Credit card debt is approaching all-time highs. I wonder how the status of consumer savings accounts has changed over the past year.

Jeff

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There is little to no momentum. It won’t stick. We are set up for a major dose of seasonality going into the new year.

30 minutes later adding…we will have possibly no budget deal on Friday. We might have a deal on Sunday Monday next but it will be a mess.

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Is that in nominal dollar terms or in real terms?

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Here is a chart of consumer loans (credit cards and other revolving plans):

They are up 21% since November 2019. CPI inflation over the same four years was 20%. Net change: +1%

DB2

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@OrmontUS personal savings spiked due to the Covid handouts but is now below the 2019 level and declining.

Wendy

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So basically no major change? I wonder what it looks like in real terms from the 2008/9 peak? (was is 2008/9? I think I recall a peak around then)

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Looking at the personal savings graph

I don’t see a peak in '08-09. Appears to be about the same as now. However, the dollars need to be adjusted for inflation and population growth.

Left as an exercise for the reader.

DB2

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So savings are (in nominal USD) down to 2017 levels and trending downwards

Jeff

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@OrmontUS let’s look at M1, which includes all money that can be spent immediately.

M1 consists of (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) demand deposits at commercial banks (excluding those amounts held by depository institutions, the U.S. government, and foreign banks and official institutions) less cash items in the process of collection and Federal Reserve float; and (3) other liquid deposits, consisting of other checkable deposits (or OCDs, which comprise negotiable order of withdrawal, or NOW, and automatic transfer service, or ATS, accounts at depository institutions, share draft accounts at credit unions, and demand deposits at thrift institutions) and savings deposits (including money market deposit accounts). Seasonally adjusted M1 is constructed by summing currency, demand deposits, and other liquid deposits, each seasonally adjusted separately.

M1 is falling.

Borrowed money can also be spent, so consumer debt is also a factor. Others have discussed this in this thread.
Wendy

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True - until it is spent. Then, while its asset value gets onto someone’s ledger, there is an equal debit on the ledger of thee borrower - who then has to remove the amount from the environment to pay off the debt. So the borrowed money really doesn’t create an increase in the absolute money supply?

Jeff

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But M2 is growing. M2 includes savings and in particular, money market savings which has exploded this year to an all time high:

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The individualized recession. Marginal matter. The burden only falls on some folks. With rising incomes, it is marginal to the rest of us.

Rates will go up in the new year. That will hurt equity and bond values. The wild card is this coming Friday. The agencies are getting ready to warn on our debt.

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I was replying to “Credit card debt is approaching all-time highs.” And I am thus referring to credit card debt.

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Ah. Here’s the graph of credit card debt. There was a relatively small peak in '08-09.

Screenshot 2023-11-13 at 5.21.45 PM
Screenshot 2023-11-13 at 5.21.45 PM1406×784 64.3 KB

I don’t know what the dislocation is 2010 is about.

DB2

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That’s the chart that I saw!!! Though I don’t know how to make it “real” instead of nominal. Was there cumulative ~55% inflation from 2009 to now?

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The CPI since November 2008 is up 45%, so close. Add in population growth (8%) and it becomes very close.

The Fed charts can be modified by clicking “Edit Graph” on the right side. Some of them will let you switch to real from nominal, but not this one.

DB2

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The M1 or M2 chart has a dislocation like that in it from a few years ago. It was caused by the Fed using new methodology to calculate the data. Probably something similar with cc debt.

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Good to know. Thanks.

DB2

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