The Guts of The Stock Market Is The Best Economist

The Guts of The Stock Market Is The Best Economist - Stanley Druckenmiller

Fed Powell Conference Call Highlights

·        Economy expanding at a strong rate

·        Housing flattened out

·        Higher rates weighing on business fixed investments

·        Jobs avg 266k, strong but below avg

·        Nominal wage growth signs of easing

·        Jobs to workers gap narrowed but exceeds supply

·        Inflation remains well above 2%

·        Core PCE up 3.7%

·        Few months of good data is only the beginning (long way to go)

·        LT inflation expectations well anchored

·        Reducing inflation is likely to require below avg growth and soft labor conditions

· Two-sided risks have grown

Markets took the final statement as a strong signal that the Fed is firmly on pause and started a huge rally.

By the time the Fed is cutting rates, economic conditions have deteriorated. Markets do poorly. However, markets have a good track record of gains after a Fed pause. Please see the data below.

Source - Carson Wealth

The strong market rebound triggered a rare Zweig Breadth thrust signal. It is a mathematical calculation of the NYSE advance + decline ratio. When the ratio moves from extreme oversold to extreme overbought within 10 trading days, markets do well over the next 6 - 12 months.

Source - Carson Wealth

While the bearish sentiment reached a crescendo in October, there we no evidence of a true risk-off signal. 

1. High-yield did not break down.

1. Neither did High Beta vs Low Beta

1. Nor did Eq. Weight Staples vs. Eq Weight S&P.

1. The Semis are a true cyclical gauge. Forget the transports. If the Semis underperform, watch out. However, they never did.

2. Lastly, the big Red Candle on the U.S. Dollar is a big ‘Green’ signal!

Have a great weekend.