| Followers | 686 |
| Posts | 142447 |
| Boards Moderated | 35 |
| Alias Born | 03/10/2004 |
Friday, June 18, 2021 11:09:55 AM
Weekly Market Guide | Markets and Investing
By: Raymond James Financial | June 18, 2021
Short-Term Summary:
Interest rate movements continue to dominate market rotation as the S&P 500 trades sideways near all-time highs. The FOMC meeting yesterday provided an update on the Fed's monetary policy plans, which showed a shift up in the timeline for eventual rate hikes- the dot plot now reflects two hikes in 2023 (with seven members seeing a hike in 2022). The Fed also increased its 2021 PCE inflation expectation to 3.4% (from 2.4%), although 2022 estimated inflation was still just 2.1% (from 2.0%). That said, the Fed increased its 2021 real GDP estimate to 7% from 6.5%, and maintained its $120B monthly asset purchases. In our view, the upshot is the Fed will remain accommodative even after liftoff (which is likely more than a year out), and raising rates will come because the economy is strong. The risk of overtightening remains minimal.
The US 10 year Treasury yield ticked higher to 1.56% following the announcement (from 1.50%), but is trading lower from technical resistance at its 50-day moving average (1.59%) today. We ultimately believe rates will grind higher as the year progresses, and view its consolidation over the past few months as normal and healthy. Still low interest rates are a tailwind for equities broadly. The S&P 500 equity risk premium is 2.4% currently, which is the lower-end of the post-credit crisis era but still well above the historical average (since 1960) of 0.6%. Another way of looking at this relationship between stocks and bonds is the S&P 500 dividend yield (1.4%) vs. US 10 year Treasury yield (1.5%). This slight advantage for bond yields is still very high (and unusual) historically. The only timeframes on record with higher dividend yields (vs bonds) were the 2008 credit crisis, 2012 EU debt crisis, 2015/16 manufacturing recession, and 2020 pandemic. All of these periods presented good long-term buying opportunities, and (interestingly) as the metric moved back in favor of bond yields (as could be occurring now), equity market returns remained solid. Pullbacks are bound to occur and the rate of ascent is due to moderate in year two of a bull market, but we expect positive intermediate term trends to continue.
As (and if) this rotational market continues to transpire, we recommend using pullbacks at the sector and stock level as opportunities. We thus recommend using the current digestion phase in rates as an opportunity to accumulate Value, as well as the banks. For example, the banks are oversold in the short term with 0% of stocks above their 10- and 20-day moving averages, though this is occurring within a strong intermediate term uptrend (100% of banks are above their 200 DMA).
Read Full Story »»»
DiscoverGold
By: Raymond James Financial | June 18, 2021
Short-Term Summary:
Interest rate movements continue to dominate market rotation as the S&P 500 trades sideways near all-time highs. The FOMC meeting yesterday provided an update on the Fed's monetary policy plans, which showed a shift up in the timeline for eventual rate hikes- the dot plot now reflects two hikes in 2023 (with seven members seeing a hike in 2022). The Fed also increased its 2021 PCE inflation expectation to 3.4% (from 2.4%), although 2022 estimated inflation was still just 2.1% (from 2.0%). That said, the Fed increased its 2021 real GDP estimate to 7% from 6.5%, and maintained its $120B monthly asset purchases. In our view, the upshot is the Fed will remain accommodative even after liftoff (which is likely more than a year out), and raising rates will come because the economy is strong. The risk of overtightening remains minimal.
The US 10 year Treasury yield ticked higher to 1.56% following the announcement (from 1.50%), but is trading lower from technical resistance at its 50-day moving average (1.59%) today. We ultimately believe rates will grind higher as the year progresses, and view its consolidation over the past few months as normal and healthy. Still low interest rates are a tailwind for equities broadly. The S&P 500 equity risk premium is 2.4% currently, which is the lower-end of the post-credit crisis era but still well above the historical average (since 1960) of 0.6%. Another way of looking at this relationship between stocks and bonds is the S&P 500 dividend yield (1.4%) vs. US 10 year Treasury yield (1.5%). This slight advantage for bond yields is still very high (and unusual) historically. The only timeframes on record with higher dividend yields (vs bonds) were the 2008 credit crisis, 2012 EU debt crisis, 2015/16 manufacturing recession, and 2020 pandemic. All of these periods presented good long-term buying opportunities, and (interestingly) as the metric moved back in favor of bond yields (as could be occurring now), equity market returns remained solid. Pullbacks are bound to occur and the rate of ascent is due to moderate in year two of a bull market, but we expect positive intermediate term trends to continue.
As (and if) this rotational market continues to transpire, we recommend using pullbacks at the sector and stock level as opportunities. We thus recommend using the current digestion phase in rates as an opportunity to accumulate Value, as well as the banks. For example, the banks are oversold in the short term with 0% of stocks above their 10- and 20-day moving averages, though this is occurring within a strong intermediate term uptrend (100% of banks are above their 200 DMA).
Read Full Story »»»
DiscoverGold
Information posted to this board is not meant to suggest any specific action, but to point out the technical signs that can help our readers make their own specific decisions. Caveat emptor!
• DiscoverGold
Join the InvestorsHub Community
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
