Jobless claims rose by 14,000 to 344,000 in the
period ended April 26, the highest level since Feb. 22, Labor Department data
showed today…“This is a time of the year when there’s a lot of seasonal issues
to work through,” said Stephen Stanley,
chief economist at Pierpont Securities LLC…“Eventually we’ll settle out. If we
were to settle at 320,000, it would be modest improvement.” Story at…
http://www.bloomberg.com/news/2014-05-01/jobless-claims-in-u-s-unexpectedly-climb-to-nine-week-high.htmlCONSUMER SPENDING JUMPS (Bloomberg)
“Household purchases, which account for about 70 percent of the economy, climbed 0.9 percent, the most since August 2009…” Story at…
http://www.bloomberg.com/news/2014-05-01/consumer-spending-in-u-s-jumps-by-most-in-almost-five-years.html
QE TAPERING; DOES IT MATTER? (STA Wealth)
"The reason it matters to investors is that stock and bond prices have benefited greatly from QE and deficit spending. Not only has QE expanded M2 [a measure of money supply], but a large portion of that M2 has found its way directly into stocks, pushing equity valuations higher and higher. The reason QE hasn't produced significant economic growth is in part the fact that the money created on the front-end of this process has been invested in risk assets rather than flowing into the economy to stimulate GDP growth… with the Federal Reserve now withdrawing that support…this leaves the market vulnerable to the actual underlying economic and fundamental underpinnings. That story is much less exuberant." – Lance Roberts. Commentary at…
http://streettalklive.com/index.php/analysis/daily-x-change.html?id=2194
The Fed has completed its third QE reduction. Will the 3-steps and a stumble rule apply?
THREE STEPS AND A STUMBLE (Financial Dictionary)
“A rule of thumb stating that the prices of stocks fall significantly after the Federal Reserve raises interest rates three times in a row. In a
booming economy, minor adjustments in key interest
rates, both up and down, are fairly normal. However, if the Fed raises interest
rates three times in a row, this is taken as an indicator that it intends for
interest rates to remain at a comparatively high level for the foreseeable
future. This leads investors to sell stock, because the businesses underlying
the stock now have the added cost of high interest rates, which reduces profits. The selling of stock causes stock
prices to drop.” Definition from…
http://financial-dictionary.thefreedictionary.com/Three+Steps+and+Stumble+Rule
I posted a little more on the 3-steps rule here (in December 2013):
http://navigatethestockmarket.blogspot.com/2013/12/qe-taper-three-steps-and-stumbleq-ratio.html
THREE STEPS AND A STUMBLE – TROUBLE AHEAD
Actually, a more accurate statement of the 3-steps and a stumble rule
says that when the Fed tightens one of its basic policy variables (Discount
rate, Margin requirement, or Reserve Requirement) three times in succession
then the markets should fall. There is no
track record for QE since bond buying on this massive scale has never been
tried before. With the Fed withdrawing
QE, and thus support for the markets, one must conclude that the markets will be
in trouble. In 2000 it took
4-tightenings before the major dot.com top.
In some years it has only taken 2-tightenings. It is doubtful that QE reduction will have
the impact that a tightening of interest rates has had in the past. Trouble is expected, but perhaps not an
all-out crash and it may take more than 3 or 4 reductions. All I can do is warily watch the markets.
Down the road, there are new regulations that will require more Bank
reserves. Bank reserve requirements have
been called the single most accurate stock market indicator of all time. Higher reserve requirements infers market
declines. Conversely, there are some
economists who say that this current stock boom began in 2009 when
“mark-to-market” accounting rules were dumped. That was a de facto reduction of
reserve requirements for banks. The new-rules
requiring greater reserves are due to be enacted 1 or 2-years in the future. I’m sure there will be more out there as this
comes closer into view.
MARKET REPORT
Thursday, the S&P 500 was UNCHANGED at about 1884 (rounded).
VIX fell about 1% to 13.25.The yield on the 10-year Treasury Note fell again to 2.61% at the close.
The Bond Ghouls are getting more worried about the stock market.
I’m going to leave this posted until the S&P 500
breaks thru the old highs: The S&P 500 has closed in the vicinity of 1880
about 8 to 10 times since 31 December.
The index has only closed above 1880 3-times and then only about ½-%
higher. It needs to punch higher or the
correction will be back. The prior high
was 1890 so, not yet.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of stocks advancing on the NYSE declined to 56% at the close. (A number above 50% for the 10-day average is generally good news for the market.) New-highs outpaced new-lows Thursday. The spread (new-highs minus new-lows was +95 . (It was +66 Wednesday.) The 10-day moving average of change in the spread was +1. In other words, over the last 10-days, on average, the spread has INCREASED by 1 each day. The smoothed 10-dMA of up-volume reversed down today. The internals turned neutral on the market.
NTSM
The NTSM analytical model for LONG-TERM MONEY remained
HOLD Thursday. Sentiment climbed to 84%-bulls
(5-dMA of {bulls/(bulls+bears)} for funds invested in selected Rydex/Guggenheim
funds. This is a very high number and on a statistical basis Sentiment is now
negative. Price reversed to neutral and VIX
& Volume indicators are neutral.
MY INVESTED POSITION
I increased my stock allocation to 50% invested in stocks
on 26 March because of the NTSM indicators turned positive Monday (24 Mar) at
the close. 50% in stocks is fully
invested for me, given my age (semi-retired) and the risk inherent in today’s
stock market. I am watching closely to see if it is time to reduce my long-term
stock holdings.
