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The Week in Review – 13Nov, 2022

November 13, 2022 /

Let’s look at what else happened: 

  1. The Dollar took quite a nosedive. The Japanese Yen and Swiss Franc was strongest against the Dollar. 
  2. Rates pulled back with the 10 year closing below 4%. 
  3. Junk Bonds, Technology, Homebuilders and Consumer Discretionary all caught a bid

The market is completely in “risk-on” mode. And most major technical momentum indicators are now bullish. 

But under the surface, not much has changed. 

Week of the SPY
Week of the QQQ

The premarket videos of the week from a review and study perspective

Monday’s premarket video

Tuesday’s premarket video

Notes from Banking on the Market

Let’s look at what else happened: 

  1. The Dollar took quite a nosedive. The Japanese Yen and Swiss Franc was strongest against the Dollar. 
  2. Rates pulled back with the 10 year closing below 4%. 
  3. Junk Bonds, Technology, Homebuilders and Consumer Discretionary all caught a bid

The market is completely in “risk-on” mode. And most major technical momentum indicators are now bullish. 

But under the surface, not much has changed. 

  • We still have mortgage rates at over 7% and next week’s housing data probably won’t come in with great numbers. We also had DR Horton report earlier this week confirming that the housing market isn’t doing well. The guided to an additional 20-25% order cancellations in the next quarter. 
  • The YoY inflation numbers came down but, the MoM numbers are still increasing. This is not particularly encouraging where you want to see prices actually reversing. 
  • Even if the Fed decides to reduce the size of the hike to 50bps, it’s still a hike! Not a cut, and QT doesn’t stop. 
  • If history is any guide, the Dollar peaks and begins to weaken once activity has bottomed, the Fed is easing and global growth starts recovering. None of this is true, right now. 
  • Finally, we have the ominous yield curve which is still -0.51% (10Y-2Y inverted). The Yield Curve starts to correct in a recession. 

The US and most other countries seem to bordering on Early Recession. 

Macro of the Week

The University of Michigan Consumer Sentiment Index declined to 54.7 dropping 8.6%. from October. While it isn’t quite at the June lows of 50, this is still a clear sign that consumers are expecting worse financial conditions ahead. 

Inflation expectations have increased but still remain within bounds. 5-10 year inflation expectations increased from 5% to 5.1% and longer term inflation expectations increased to 3%. But, consumers don’t think we are out of the woods yet. 

Consumers are most concerned with higher interest rates and the effect it will have on their wealth. This concern was across the board, including higher-income consumers. 

… buying conditions for durables, which had markedly improved last month, decreased most sharply in November, falling back 21% on the basis of high interest rates as well as continued high prices. – UoM Survey

Despite a strong labor market, consumers are also worried about unemployment going up in the next twelve months, according to the survey data. 

The 50-year chart below shows that we have some of some of the worst readings compared to history and most of these low readings have coincided with a recession. The market may have celebrated a small win this week with inflation numbers coming in slightly cooler than expected but, this is still a troubling sign and one that the Fed does pay attention to. 

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