Apparently, Valuations Do Matter

2021 ended with a bang, with the S&P posting a 27% gain on the year. This appreciation occurred with the markets were facing a trifecta of rising interest rates, an unknown coronavirus variant backdrop, and the Federal Reserve tapering. The major indices reached unprecedented territory breaking through all-time high after all-time in what seemed like a daily occurrence throughout the year until the back third of the year rolled around. The September correction was a harbinger that valuations do matter, albeit October saw a huge reversal to the upside. Then came the November/December bifurcation in the markets, along with extreme bouts of volatility. Despite the back third of the year, the S&P 500 posted a 27% gain, placing the index in rarified air across many valuation metrics.

As interest rates, fed taper, and the pandemic gripped the markets, a sea change occurred. This sea change started to take hold back in November and December of 2021 while really accelerating in the first week of January 2022. As a result, technology names experienced heavy selling, specifically in stocks with high beta and/or rich valuations. This massive rotation came out of technology companies that are unprofitable with proof of concepts and into value-oriented companies that are well-capitalized, profitable, and pay dividends. As 2022 continues onward, this theme will lead the charge in the markets until the uncertainty surrounding the pandemic and the interest rate environment is settled out. Continue reading "Apparently, Valuations Do Matter"

Rescue Me

How transitory is transitory? Maybe inflation won’t turn out to be as “transitory” as we would like, but even the Federal Reserve thinks inflation will ease sometime in the not-too-distant future, likely this year. The bond market certainly doesn’t seem overly concerned about it, with the 10-year Treasury note trading late last week at about 1.75%, or about six percentage points below the current inflation rate. If inflation is such a big problem that must be addressed immediately, shouldn’t long-term bond rates be closer to 5% or 6% rather than less than 2%?

Then why is the Fed all of a sudden so worried about stamping out inflation when it’s also predicting that the inflation rate will come down fairly soon? What’s the rush?

According to its most recent economic projections released after its December 15 monetary policy meeting, the Fed said it expected inflation to fall to 2.6% this year, from 5.3% last year, then fall to 2.3% next year and 2.1% in 2024. Yet now the Fed can’t seem to stamp out inflation fast enough, even though it was Fed policy not too long ago to let inflation “burn hotter for longer.” What happened with that? Continue reading "Rescue Me"

Gold Has Stalled At Equilibrium

Back in April 2020, in my post, I had surmised "Gold Could Fly Over A Helicopter Throwing Money" as the fourth round of Quantitative Easing (QE4) had started a month earlier in March 2020 with an initial pledge to inject $700 billion via asset purchases to support U.S. liquidity. The price of gold was $1,681 at that time.

We all knew that the printing press should push gold prices higher. I tried to calculate the possible target area for the gold price using comparative analysis of the past period, and then I set the range of three goals: $2,000-$2,200-$2,540. Your reaction had come as follows.

Gold Poll

The ultra-bullish $2,540 target dominated the ballot. However, the second bet with a more realistic $2,000 target was the closest yet as we saw the all-time high at $2,075 in August 2020. I guess I found the reason for this outcome in the monthly chart below. Continue reading "Gold Has Stalled At Equilibrium"

Weekly Stock Market Forecast

This week we have a stock market forecast for the week of 1/16/2022 from our friend Bo Yoder of the Market Forecasting Academy. Be sure to leave a comment and let us know what you think!

The S&P 500 (SPY)

SPY Weekly Chart - Stock Market Forecast

While my forecast for a weak or "false" breakout in my last forecast has proven correct, I still won't have that much confidence in the sustainability of this top until we have a clear break below the support level at $450 per share and a weekly close below that area.

The Fed is running the show with its endless printing of money. Imagine yourself back in high school and working your tail off to scrape the money together to buy a car. In the meantime, you see several kids show up at your school in brand new BMWs that daddy bought. Continue reading "Weekly Stock Market Forecast"

Stock Market Notches Second Straight Losing Week

The downtrend from last week continued this week as the stock market notched its second straight losing week to start 2022, with all three indexes finishing in negative territory. The NASDAQ shed -0.28%, while the DOW and S&P 500 lost -0.30% and -0.88%, respectively.

As for Friday's trading, The DOW slid 201.81 points or -0.56%, to finish the week at 35,911.81. The S&P 500 inched up +0.08% to 4,662.85, while the NASDAQ outperformed with a +0.59% gain to close at 14,893.75. Continue reading "Stock Market Notches Second Straight Losing Week"