Markets Caught In A Sea Of Red

Tuesday’s session saw a sea of red, as ‘selling begets selling’ and weaker hands blinked. It’s been a tough stretch for those that expect the market to be up every day. But internal carnage was already a reminder.

Growth Couldn’t Save Growth

Mega-cap growth held up well, except Facebook (FB), which is facing some very embarrassing internal memos on special treatment for celebrities and ignoring the damage to teenage girls from its Instagram platform.

Other growth/tech names didn’t fare as well, resulting in the NASDAQ Composite seeing more 52-week new lows than highs and significantly more down volume than up volume.

Meanwhile, bond yields also plunged, which is a head-scratcher. What’s more interesting is the broken relationship between the rate of inflation and yields. I wish I knew why this is happening, but I do not.

Inflation Question

Just as it seemed there would be answers on the inflation front, we are dealing with more questions, and the uncomfortable truth is it is going will linger. The problem is the impact on consumer wallets and even the labor force and business bottom lines.

Real Wages

Incomes are higher, but purchasing power is fading rapidly as inflation eats up all the gains. There will be implications that we might see with tomorrow’s retail sales report. There is still a ton of money sloshing around that could serve as a bumper. On the other hand, we did see the pace of folks quitting jobs slow recently.

All Workers

Blue-Collar Workers

Fear & Loathing

Fear is increasing, but I don’t think there is a lot of loathing, just yet. Actually, fear is supposed to be a contrarian indicator that is good for the stock market.

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The Big Test

Here we go again – the S&P 500 is hovering right above its 50-day moving average – this has been a safety net/launching pad over and over again…I think it will continue to hold.

Portfolio Approach

To raise cash, yesterday we closed two positions in Consumer Discretionary and one in Technology in our Hotline model portfolio.  This morning, we are adding a new position in Consumer Technology.  Our cash is 10%. 

Today’s Session

• Manufacturing

Strong rebound in New York area manufacturing is very positive.

Empire State Manufacturing

• Housing / MBA Mortgage Applications
• Composite Index: +0.3% from -1.9%
• Purchase Index: +7% from +1%
• Refinance Index: -3% from -4%

30-year mortgage rate unchanged at 3.03%.

Ten Year bond yield remains under pressure belying the notion of imminent Fed action but underscoring the strength of US economic versus the rest of the world.