MARKET RALLY • FED PRESIDENTS • STOCK MARKET REWARDS
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Market reaction was jubilant, but have the facts here changed?
Two Fed Presidents who are also on the Fed Funds rate hiking committee spoke yesterday (George and Mester). Both mentioned the importance of maintaining “tightening” financial conditions: this means higher interest rates and lower stock prices. Today’s market action, which has seen the ten-year yield fall 32 basis points in a single day and the S&P 500 gain 5.5%, flies in the face of the Fed’s desired outcome.
Recall what Chairman Jerome Powell said at Jackson Hole: “A single month’s improvement falls far short of what the Committee will need to see before we are confident that inflation is moving down.”
The stock market rewarded the year’s losers yesterday (growth stocks, post-IPOs, most-shorted names).
The internals are improving: over 80% of S&P 500 stocks are trading above their 50-day moving average and about 50% are above their 200-day moving average.
Note that as goods inflation decelerates, services inflation (stickier, less responsive to interest rate hikes) continues to rise.
The Cleveland Fed’s Median Inflation reading shows the price change that’s right in the middle of all other price changes. This number continues to set records (before this year the highest median inflation got was 4.8 in 1990 when Core CPI was 5.5). Underlying inflation remains strong.
Here we see the percentage of stocks in the total stock market that are trading above their 200-day moving average. Currently at 42%, it’s higher than the summer rally but still below the late-March rally.
However, the number of stocks hitting new lows has outpaced the number of stocks hitting new highs for 59-straight trade days. Underlying weakness remains.
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