Core Concerns - Interest Rates and Earnings
Technical
Both the S&P500 and nasdaq composite ended the week below their 200 day moving averages, although both indices finished on the way up. Many investors feel with the declines of the last few weeks the market is due for a bounce as stocks became "oversold". However, on a weekly basis the market may not be as "oversold" as it appears. Indicators are at levels not normally associated with a meaningful correction. Only time will tell but I will need to see a bit more technical support before I believe the tape says its okay to buy away.
Core Concerns
Today investors' core concerns revolve around interest rates. The 10yr Treasury has hovered around 4.48% all week, a tick or two below the heavy resistance levied at 4.50%. The fear is if the 10yr yield breaks above 4.50% it will not move lower for some time. Although, inflation fears were quelled somewhat when core CPI was reported last week, all indications are the Fed is determined to deflate asset bubbles floating around the economy and will continue to raise rates. With the inertia of higher rates pulling down growth 4th quarter earnings will be in danger of falling short of analysts estimates. Our studies show that the economy has begun to slow and the smart money has already begun their asset rotations. In the coming weeks we will be keeping an eye on the 10yr as its yield is on a precipice from which a change in trend can occur. If the yield moves above 4.50% for any length of time we are likely to change our investment strategy.
As if changes in interest rates were not enough investors will be fed the main course of 3rd quarter earnings this week as the core of the S&P500 serves up their numbers. As I mentioned in a prior post investors will be less concerned with the actual numbers than with what is said about the future of earnings. Expect future projections contained in the reports to drive the market. Thus far the earnings that have been reported have been pretty good. Again, the question will be can companies keep them growing profits above trend.
In summary we are taking a wait and see approach before leaning into this market. We are waiting for what is said between the lines of 3rd quarter earnings reports and what the tape does before we act. That said, rising interest rates and stubbornly higher energy costs will force us to speculate on the short side if either spikes higher in the short term. Stay tuned during the week to see what we do. You can see our changes by visiting our website at www.thesmartmoneyinvestor.com.
Both the S&P500 and nasdaq composite ended the week below their 200 day moving averages, although both indices finished on the way up. Many investors feel with the declines of the last few weeks the market is due for a bounce as stocks became "oversold". However, on a weekly basis the market may not be as "oversold" as it appears. Indicators are at levels not normally associated with a meaningful correction. Only time will tell but I will need to see a bit more technical support before I believe the tape says its okay to buy away.
Core Concerns
Today investors' core concerns revolve around interest rates. The 10yr Treasury has hovered around 4.48% all week, a tick or two below the heavy resistance levied at 4.50%. The fear is if the 10yr yield breaks above 4.50% it will not move lower for some time. Although, inflation fears were quelled somewhat when core CPI was reported last week, all indications are the Fed is determined to deflate asset bubbles floating around the economy and will continue to raise rates. With the inertia of higher rates pulling down growth 4th quarter earnings will be in danger of falling short of analysts estimates. Our studies show that the economy has begun to slow and the smart money has already begun their asset rotations. In the coming weeks we will be keeping an eye on the 10yr as its yield is on a precipice from which a change in trend can occur. If the yield moves above 4.50% for any length of time we are likely to change our investment strategy.
As if changes in interest rates were not enough investors will be fed the main course of 3rd quarter earnings this week as the core of the S&P500 serves up their numbers. As I mentioned in a prior post investors will be less concerned with the actual numbers than with what is said about the future of earnings. Expect future projections contained in the reports to drive the market. Thus far the earnings that have been reported have been pretty good. Again, the question will be can companies keep them growing profits above trend.
In summary we are taking a wait and see approach before leaning into this market. We are waiting for what is said between the lines of 3rd quarter earnings reports and what the tape does before we act. That said, rising interest rates and stubbornly higher energy costs will force us to speculate on the short side if either spikes higher in the short term. Stay tuned during the week to see what we do. You can see our changes by visiting our website at www.thesmartmoneyinvestor.com.
posted by Burton Hess at 5:38 PM
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