August has seen the unwinding of the seven-month rally in technology and digital stocks that, to varying degrees, lifted equities across most sectors this year. Stocks often struggle in the summer; but usually that means they are lethargic, not heading notably lower. What caused stocks to give up big parts of their year-to-date gains? AI mania drove much of the stock rally in the first half of the year. And in any stock-market mania, unbridled enthusiasm gives way to second-guessing at some point. Consumers and businesses show few signs of spending fatigue, contributing to inflation’s persistence. We think the difficulty in getting inflation down to the 2% target level, along with some buyers’ remorse on AI mania, has prompted investors to take profits.
https://www.gam.gi/wp-content/uploads/2019/06/gamlogo.png 0 0 Mark Maloney https://www.gam.gi/wp-content/uploads/2019/06/gamlogo.png Mark Maloney2023-09-04 15:41:532023-09-04 15:42:51Market Commentary September 2023
https://www.gam.gi/wp-content/uploads/2019/06/gamlogo.png 0 0 Mark Maloney https://www.gam.gi/wp-content/uploads/2019/06/gamlogo.png Mark Maloney2023-08-14 15:37:102023-08-14 15:38:08Market Commentary August 2023
Data on NYSE margin debt (borrowed funds from brokerage firms) has been an excellent indicator confirming bull and bear markets. It is based on monthly data, so there is a time lag, but it is impossible to catch the top or the bottom in any case. Margin debt bottomed at the end of 2022 and has crossed above its 10-month average for an intermediate-term to long-term buy signal. This reverses the sell signal from late 2021 (when its uptrend broke) and a confirming signal when it broke the 10-month at the end of January 2022. Prior buy signals for the S&P 500 were given in June 2020, July 2016, September 2012, July 2009, April 2003, May 1995, May 1991, December 1982, and June 1975. These were all good signals. Sell signals were produced in October 2018, August 2015, July 2011, Sept. 2007, October 2000, November 1987, November 1981, and April 1973. These were good as well, but the reading was late for the 1987 crash.
https://www.gam.gi/wp-content/uploads/2019/06/gamlogo.png 0 0 Mark Maloney https://www.gam.gi/wp-content/uploads/2019/06/gamlogo.png Mark Maloney2023-07-12 16:30:162023-07-12 16:30:55Market Commentary July 2023
Just like that, 2023 has reached the half-year mark. As the years pile up, each passing year seems to compress into a tighter timeframe, and 2022 feels like it was six weeks not six months ago; but that is a discussion for another time. The outlook at mid-year 2023 is certainly an improvement over that of mid-year 2022, when inflation was near 40-year highs and rising, the supply-chain crisis was raging, and the central banks were just getting started on their aggressive rate-hiking policies. The war in Ukraine was just a few months old, and China was still in its zero-tolerance phase of COVID-19 lockdowns. As July 2023 gets underway, the major central banks have largely completed their rate-hiking campaigns. The annual rate of change in inflation is about half the peak level reported in June 2022. Supply chains now appear to be normalizing. China has reopened; and Russia is surrendering ground in Ukraine.
https://www.gam.gi/wp-content/uploads/2019/06/gamlogo.png 0 0 Mark Maloney https://www.gam.gi/wp-content/uploads/2019/06/gamlogo.png Mark Maloney2023-06-12 12:38:312023-06-12 12:48:08Market Commentary June 2023
Attendees at a recent event celebrating the 50th anniversary of the Chartered Market Technicians Association in New York were asked to forecast how the S&P 500 would end the year. With the index drifting sideways for the past year, it’s not surprising that a majority expected the index to remain range bound between 3,750 and 4,250. This is one of the basic tenets of technical analysis: the trend is your friend, until it isn’t. It also is known as recency bias: what recently happened is expected to continue, as it is the freshest in the mind of most investors. The poll did tilt toward the bullish side, with 31% looking for a move on the SPX to above 4,500, while 11% were bearish. In our view, there are far too many mixed signals on which to lean (to on one side or the other), so we would not argue with the above poll. The bulls have had their chance and the bears have had their chance, and neither group is strong enough to break the tug of war.
https://www.gam.gi/wp-content/uploads/2019/06/gamlogo.png 0 0 Mark Maloney https://www.gam.gi/wp-content/uploads/2019/06/gamlogo.png Mark Maloney2023-05-09 14:45:232023-05-09 14:52:41Market Commentary May 2023
The odds are increasing for a potential recession in the second half of 2023. The banking system seems to be back on its feet after the Silicon Valley Bank collapse; but the implications for loan and credit availability are uncertain and could play out unpredictably in the coming months. For all that, the FTSE 100 is up 3% year-to-date. The stock market is of course anticipatory, and investors are looking past near-term challenges. Up ahead, they see the end of the Bank of England’s rate-hiking cycle, stabilisation and eventual reduction in inflation, and – hope springs eternal in – the BoE successfully navigating the economy into a soft landing.
https://www.gam.gi/wp-content/uploads/2019/06/gamlogo.png 0 0 Mark Maloney https://www.gam.gi/wp-content/uploads/2019/06/gamlogo.png Mark Maloney2023-04-11 12:21:202023-04-11 12:22:43Market Commentary April 2023
By definition, “black swans” in the financial world seemingly come out of nowhere – and the collapse of Silicon Valley Bank (SVB) would certainly seem to meet that standard. This was a very specific issue (a drought in the IPO market which led to a tech firm cash crunch) in a small part of the world (Silicon Valley) and ideally would have had implications for just that bank, or at most a few others with exposure to startup tech. Yet because of another issue – the unprecedented speed of the Fed’s rate-hiking campaign – the SVB failure seemed to shake the foundations of the US banking system. This campaign has led to significant mark-to-market losses on the balance sheets of nearly every bank. Yet fears regarding the solvency of the banking system are overblown. Banks routinely face interest-rate cycles and hold large amounts of fixed income assets, sometimes at gains and other times at losses. Default risk is low and losses are immaterial if the assets are held to maturity, as they mostly are.
https://www.gam.gi/wp-content/uploads/2019/06/gamlogo.png 0 0 Mark Maloney https://www.gam.gi/wp-content/uploads/2019/06/gamlogo.png Mark Maloney2023-03-06 12:54:442023-03-06 12:59:26Market Commentary March 2023
Bullish sentiment in the stock market can occur during both a bear market and a bull market. When we are in a bear market, sentiment gets bullish during counter-trend rallies, only to see new lows ahead. However, during the initial stages of a bull market, sentiment will also get bullish. To those who don’t analyse history, this is assumed to be a bad thing that is likely to doom the rally. One could argue though that we are at that point in the cycle right now. There are plenty of technical indications that stocks have transitioned into a bull market, whether it’s price action, the chart structures of certain major indices, or market breadth. At the initiation stage of a bull market, we need investors to turn more positive and start getting back into stocks. We have had some of that lately, yet we think part of the rally was short-covering as there was a lot of pessimism at the end of 2022. Now that the shorts have covered, that fuel is gone. If the market can hold on and grind higher, it would be a great sign that the stock market has indeed turned the corner.
https://www.gam.gi/wp-content/uploads/2019/06/gamlogo.png 0 0 Mark Maloney https://www.gam.gi/wp-content/uploads/2019/06/gamlogo.png Mark Maloney2023-02-06 15:09:352023-02-06 15:11:59Market Commentary February 2023
The stock market in 2023 is simply a different animal than it was in 2022. All the major indexes are up, risk-on is back, and growth stocks are leading the way. Happy days are here again, right? Not so fast. The market has had a strong January, but stocks also rose sharply in October and November 2022 – before face-planting in December. Recession risks are clearly present and may be rising, as evidenced by the GDP & corporate earnings figures. Stocks in January appear to have risen on a valuation bounce and on hopes, if not expectations, that central banks will begin to reverse course sometime in 2023. While year-to-date stock gains may prove to be a house of cards, for now investors are happy to see green on the screen.
https://www.gam.gi/wp-content/uploads/2019/06/gamlogo.png 0 0 Mark Maloney https://www.gam.gi/wp-content/uploads/2019/06/gamlogo.png Mark Maloney2023-01-09 11:24:112023-01-09 11:26:01Market Commentary January 2023
We wish all our clients and readers a very Happy New Year. The FTSE 100 has seen heightened volatility as of late – falling 5% in September, before rising 3% in October and a further 7% in November. Those monthly moves up and down are substantially larger than typical monthly changes in the 1%-2% or lower range, and signal a developing battle between bulls and bears. Bulls want to believe that the rise in inflation is moderating, and that central banks will take their foot off the gas as pricing pressures ease. Bears believe past central bank actions as well as inflation’s dampening effect on consumer discretionary spending will push the economy into recession in 2023. Our view is that the stock market should continue to grind higher over the course of the year. However, it could be a bumpy ride and investors need to get used to such volatility.
https://www.gam.gi/wp-content/uploads/2019/06/gamlogo.png 0 0 Mark Maloney https://www.gam.gi/wp-content/uploads/2019/06/gamlogo.png Mark Maloney2022-12-05 14:33:042022-12-05 14:33:45Market Commentary December 2022
Most investors will be happy to see the back of 2022. It has been a year where everything went against both the stock and bond markets. Much of the pain was self-inflicted – as too much liquidity led to out-of-control inflation and then central banks were far behind the curve (and have been playing catch up ever since). Too much liquidity led to bubbles in the mega-caps in 2021 and mega bubbles in tech stocks, most of which had scorching revenue growth but were not profitable. Some of these names went up 200%, 300%, and 400% – performance reminiscent of the late 1990s tech bubble. The biggest bubble was in crypto, as a generation of “20 somethings” took the financial world by storm, sending Bitcoin to $69,000 in late 2021 from $4,000 in early 2020 and then back to ~$17,000 today. All bubbles eventually pop – and then things get very ugly, as they have this year. We project that 2023 will not be nearly as dramatic, as so much bad news has already been reflected in stock and bond prices.