Market Conditions (14/04/24)
Macro Situation
play action pass (noun):
- in American football, a play designed to look like a run turns out to be a pass;
- in economics, a game that uses something other than interest rates to control inflation.
- New Entry in the Updated Demon Dictionary
CPI rose 0.4% compared to March and 3.5% compared to a year earlier. Meanwhile, the prolonged high interest rate environment took a toll on large banks (e.g. JP Morgan, Wells Fargo, Citigroup), whose net interest income fell significantly.
Therefore, the market is not happy this week. However, the Fed remains unperturbed.
The Fed commented that although the latest inflation data is disappointing, it signals a reduced urgency to lower interest rates. There is more to this establishment than meets the eye.
Some interesting play calls are in the works. Rather than focusing solely on interest rates, the Fed could slow its asset runoff . These are assets that have matured and cannot be replaced.
Asset runoff is a form of quantitative tightening that reduces the amount of money the Fed gives banks. So, slowing the process is a way to reduce quantitative tightening – which has been one of Powell's strategies since December 2023.
Will this work? Perhaps in September, when 44% of economists surveyed expect the first rate cut to occur.
As of April 5, 2024, the ANFCI has shown slightly more “risk friendly” conditions, increasing from -0.52 last week to -0.55.
Core Asset Update
Gold (2360.20) once broke well above 2400. However, gold suffered a sharp decline on Friday afternoon, perhaps reflecting the waning appeal of gold bullion in a high interest rate environment.
The 10-year Treasury yield (4.518%) initially spiked midweek on surprising CPI data but eased later in the week as the bond market adjusted to the prospect of reduced urgency to lower interest rates in the near term.
It is worth noting that “war stocks” such as NOC and LMT fell at Friday's close. This suggests that the market at that time did not expect a wider conflict.
- Todd Mei, PhD & Sebastian Purcell, PhD
AI Sentiment Report
The following sentiment scores use AI to track sectors as leading indicators.
( Lesson 4 of The Art of The Bubble covers selecting key indicators for bubble trading ).
The score is most indicative for the next day's trading (Monday), but seems to determine the general conditions for the week ahead.
The methodology used is based on this peer-reviewed academic article , which yielded 550%+ results in backtesting over a 2 year period. We consider scores 4 and 5 to be positive, but keep in mind that the AI model is still in the validation stage.
-Research Team: Dom Viera, Samantha Russell, Nicole Zinuhova, Michelle Milan
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