Trading Week - 01/10
Weekly Summary:
During the week, we saw many data releases affected the markets and presenting a negative picture of economic activity around the world, the S&P500 and NASDAQ index closed third consecutive quarter of decline for the first time since the subprime crisis.
At the beginning of the week, unusual leaks were found in the gas pipelines connecting Russia and Europe, which may have been caused by underwater explosions. The European Union is investigating whether it is deliberate sabotage of the Nord stream 1 and 2 gas pipelines that caused the gas leak.
But this was not the main event of the week, we also saw this week that the Bank of England announced a temporary purchase plan of long-term bonds in order to moderate the sharp declines in bonds that led to sharp increases in government bond yields. This measure also had an impact overseas And caused the yields of the American bond to fall for the reason that they realized that the current crisis has no rules, the yield of the 10-year American bond made a sharp daily movement when it was over 4% and closed on the same day at a level of 3.7%.
In the macro sector there were quite a few events this week, initial claims for unemployment benefits were published very far from what the Fed wants to see. The initial claims for unemployment benefits that last week amounted to only 193 thousand, a number below 200 thousand indicates a very tight labor market and still does not show the increase in unemployment that the Fed is waiting for.
The growth forecast for the 3rd quarter was updated strongly this week from over 0.3 to 2.4 following a sharp increase in private consumption in the monthly data, meaning that an interest rate of 3% is far from doing the job and despite the sharp declines in stock market rates the Fed may continue the rate of interest rate increases without fear.
The interest rate on mortgages in the US jumped above 6.5%, the real estate market began to signal a slowdown, at the current rate we see an entry into a crisis in real estate that may worsen.
The Fed's preferred consumer price index (PCE) was published this week and exceeded expectations, the core index rose by 0.6% in August compared to an expected 0.5% and the annual rate accelerated from 4.7% to 4.9%.
In the bottom line, Europe continues to be volatile in light of the approaching winter and the energy crisis, in the United States it seems that the volatility in the markets will not pass so quickly and may even get worse, the high inflation combined with a decrease in demands for unemployment benefits support the continued interest rate hikes by the Fed without fear and without taking the stock markets into the equation.
Indices World:
S&P 500 - Weekly Performance
Credit: Koyfin
US Yield Curve
Monthly Earnings Releases
Credit: Earnings Whispers
Fear & Greed Index
Credit: CNBC Business
According to CNBC's Fear & Greed index, it can be seen that the markets are now in the momentum of extreme fear but, the high inflation, interest rates and Commodities return the market to declines and an increase in volatility.
Indicators:
Market Momentum: Stock market levels compared to where they have been in recent months. When the S&P 500 is above the moving or rolling average of the previous 125 trading days, it is a sign of positive momentum. But if the index is below average, it shows that investors are getting nervous. The index uses market momentum as a signal for fear and increasing momentum for greed.
Stock price strength: how big stocks can skew market returns. It is also important to know how many stocks are successful compared to those that are struggling. This index shows the number of stocks on the NYSE at a 52-week high compared to those at a 52-week low. When there are many more highs than lows, it is a bullish sign and signals greed.
Stock price breath: the market consists of thousands of stocks and on any given day investors are actively buying and selling them. This index looks at the amount, or volume, of stocks on the NYSE that are rising compared to the number of stocks that are falling. A low (or even negative) number is a bearish sign. The index uses the decline in trading volume as a signal of fear.
Put/Call Options: options are contracts that give investors the right to buy or sell stocks, indices or other financial securities at an agreed price and date. When the Put to Call ratio rises, it is usually a sign that investors are getting more nervous. A ratio above 1 is considered bearish. The index uses the options ratio as a signal for fear.
Market Volatility: The best-known measure of market sentiment is the Volatility Index, the VIX, which measures expected price movements or volatility in S&P 500 options over the next 30 days. The VIX often falls on days when the broader market rises and soars when stocks plunge. But the key is to look at the VIX over time. It tends to be lower in a bull market and higher when the bears are in control. The index uses increasing volatility in the market as a signal of fear.
Safe-Haven Demand: stocks are riskier than bonds but the reward for investing in stocks over time may be greater. Still, bonds can outperform stocks in short periods. Safe haven demand shows the difference between government bond and stock returns over the past 20 trading days. Bonds do better when investors are scared. The index uses the growing demand for government bonds as a signal of fear.
Junk Bond Demand: junk bonds carry higher risk. Bond yields fall when prices rise. If investors crave junk bonds, yields go down. Also, yields go up when people sell. So when the spread between junk and government bond yields is smaller, it's a sign that investors are taking on more risk. A larger spread shows caution The index uses demand for junk bonds as a signal of greed.
Have a Great Week!
Daniel Asoulin.