Today is 111 market days from the 3/23 low. Check for consistent ranking within the past 21 days for new commitments OR Jack’s 5-10 day rule as he explained in the session on 8-25. 

T2107 shows the number of stocks above the 200-SMA is stuck in a trading range this month around 45%. Trading range is the common condition of stocks and sectors. The favored members of the indices are the exception.

T2107 has been in a decline since 2017.

Speculation in a few large cap stocks during a recession is not normal. The winners are companies with services addressing WFH and other needs of people and businesses dealing with extended isolation. I expect the indices to remain within trading ranges holding an upward bias – not due to broad support but due to the leadership concentration.

As if the Fed has been able to generate inflation, its collective wisdom has concluded that above target inflation will be acceptable as compensation for persistent lower levels.

Now they will debate if the average is adequate before raising rates. This is a negative for the long bond. The Fed’s policy evolution indicates more active adjustments but continued liquidity injections favoring investors while attempting to generate jobs and wage increases. (We think it will work this time).

Job creation is job one at the expense of price stability.

A clip from the speech.

Back to demographics, will Boomers moving into retirement still outweigh other cohorts? If so, the Fed is facing an uphill battle.

Revision of Q2 GDP from -32.9% to 31.7% reflects improvement but remains the worst since the Great Depression. Tracking unemployment looks similar to the volatility of a market index – improving with uncertainty. It is difficult to know if improvement is a result of new jobs or expiring benefits along with people ceasing their search. Likely, it is a mix.

Restaurants, with low margins and often arbitrary government restrictions on occupancy, have difficulty finding staff even with wage increase. “Free” government subsidies are an incentive to not work.

Without increasing job prospects, the ability to repay debt suffers. Capital One is proactively cutting credit limits on its cards. The Association for Corporate Growth, a group that lobbies for middle-market businesses, says that 81% of businesses failed to get a loan through the Fed’s Main Street Lending Program. Updating an adage learned in the ‘70s. “When you don’t need a loan, the banker is your friend. When you do need a loan, not so much.”

The charts of VIX-X & VNX-X show upticks. Breaking above resistance will be reason for caution.

Regards,

Don Creech
2323 Alaska Ave. E.
Port Orchard, WA 98366
360-620-8635