Big Week Ahead for Markets?
Monday's media seem to be pushing a big week ahead for markets. Lots
of reports due to join the regularly scheduled FOMC (Fed Open Market
Committee) report. Typically traders aren't going to commit either way
(bull/bear) ahead of that report which should follow their scheduled
meeting on Tuesday/Wednesday.
We were also greeted by a warning that this August may not be the typical "calm" or "doldrums" month. Historically, markets reflect the August summer doldrums that create a slow, calm atmosphere in the business world in general.
Of course we won't know whether any of this plays out until it actually happens: re this week, after the FOMC meeting; re this month, we should get some inkling later this week into next.
While good reasons were given by the media stories, I'm wondering whether these reports aren't driven by an "itch" for action. After all, it's been a relatively boring time lately. Stock have trended up with higher lows and higher highs, but not by much. Gold has fallen asleep, despite this being the season it usually spikes higher. Even bonds haven't really excited much, despite recent spikes in yields. After all, we've seen this jump in yields before, along with the predictions that this time yields are set to explode even higher - only to fall back once the pot has been stirred enough to get everyone on edge.
Oh, and we might add one more stress-inducer to the mix: housing prices. It seems existing home sales have fallen recently, particularly in the hottest markets, but also generally. Robert Schiller, who publishes the Case-Shiller Home Price Indices has commented that this rise, combined with rising mortgage interest rates, could be signalling the beginning of a new phase for what has been a strong housing market. That phase could see general declines in prices as buyers pull back due to mortgages being more expensive. And, of course, for the most part, no one (except for the super-rich) any longer has the dough to either buy a house for cash or plunk down an outsized downpayment to minimize the size of the mortgage they need to take on. So mortgage rates are a big deal. As for what happened to the theory that builders haven't been building enough new homes to keep up with demand, thereby assuring a continual rise in prices, well, it's simply not center-stage at this juncture. After all, it would throw a wet blanket on the claim that housing prices are about to dramatically fall, the preferred story of the day.
Of course, if you've manage to wise up when it comes to the "news," especially financial markets news, you may want to take all of this with a grain of salt. One of the ways we keep media stories and the theories they spawn at arms length is to monitor a selection of "indicators" that you believe (based on past patterns) will tell you when real danger might be around the corner. We've do this and check these weekly. So we looked back through early May when stock prices began their slow arduous recovery from the February correction. What did we find?
One trend that has persisted is a slow (very slow) flattening of the yield curve. People watch this under the belief that an inverted yield curve (short rates higher than long) signal recession. A very slow flattening could be a sign that this lies in our future. And while the flattening trend persisted, we did make a little mental note to keep close watch. But it has been extraordinarily slow, so it sure doesn't seem like danger is around the next corner. Maybe the one after that?
As for our other indicators, many of which are designed to catch divergences in indices that can signal trouble ahead for the stock market, these have wobbled at times. For a spell we had some slight divergence in a few of them. Having noted this, it turned out that those divergences reversed. Every one of the indicators comparing various indices now show no (zero) divergence. So nothing really dramatic to report re the stock market.
All in all, the pattern has been calm. And maybe the recent warnings were based on these being too calm. The old saying "calm before the storm" comes to mind here. On the other hand, it may just be regular old calm, despite the constant yammering you hear all the time about how "volatile" markets are. They're not always volatile folks. So maybe that's all this is afer all. Either that, or those summer doldrums will indeed emerge and stifle things until Labor Day.
We were also greeted by a warning that this August may not be the typical "calm" or "doldrums" month. Historically, markets reflect the August summer doldrums that create a slow, calm atmosphere in the business world in general.
Of course we won't know whether any of this plays out until it actually happens: re this week, after the FOMC meeting; re this month, we should get some inkling later this week into next.
While good reasons were given by the media stories, I'm wondering whether these reports aren't driven by an "itch" for action. After all, it's been a relatively boring time lately. Stock have trended up with higher lows and higher highs, but not by much. Gold has fallen asleep, despite this being the season it usually spikes higher. Even bonds haven't really excited much, despite recent spikes in yields. After all, we've seen this jump in yields before, along with the predictions that this time yields are set to explode even higher - only to fall back once the pot has been stirred enough to get everyone on edge.
Oh, and we might add one more stress-inducer to the mix: housing prices. It seems existing home sales have fallen recently, particularly in the hottest markets, but also generally. Robert Schiller, who publishes the Case-Shiller Home Price Indices has commented that this rise, combined with rising mortgage interest rates, could be signalling the beginning of a new phase for what has been a strong housing market. That phase could see general declines in prices as buyers pull back due to mortgages being more expensive. And, of course, for the most part, no one (except for the super-rich) any longer has the dough to either buy a house for cash or plunk down an outsized downpayment to minimize the size of the mortgage they need to take on. So mortgage rates are a big deal. As for what happened to the theory that builders haven't been building enough new homes to keep up with demand, thereby assuring a continual rise in prices, well, it's simply not center-stage at this juncture. After all, it would throw a wet blanket on the claim that housing prices are about to dramatically fall, the preferred story of the day.
Of course, if you've manage to wise up when it comes to the "news," especially financial markets news, you may want to take all of this with a grain of salt. One of the ways we keep media stories and the theories they spawn at arms length is to monitor a selection of "indicators" that you believe (based on past patterns) will tell you when real danger might be around the corner. We've do this and check these weekly. So we looked back through early May when stock prices began their slow arduous recovery from the February correction. What did we find?
One trend that has persisted is a slow (very slow) flattening of the yield curve. People watch this under the belief that an inverted yield curve (short rates higher than long) signal recession. A very slow flattening could be a sign that this lies in our future. And while the flattening trend persisted, we did make a little mental note to keep close watch. But it has been extraordinarily slow, so it sure doesn't seem like danger is around the next corner. Maybe the one after that?
As for our other indicators, many of which are designed to catch divergences in indices that can signal trouble ahead for the stock market, these have wobbled at times. For a spell we had some slight divergence in a few of them. Having noted this, it turned out that those divergences reversed. Every one of the indicators comparing various indices now show no (zero) divergence. So nothing really dramatic to report re the stock market.
All in all, the pattern has been calm. And maybe the recent warnings were based on these being too calm. The old saying "calm before the storm" comes to mind here. On the other hand, it may just be regular old calm, despite the constant yammering you hear all the time about how "volatile" markets are. They're not always volatile folks. So maybe that's all this is afer all. Either that, or those summer doldrums will indeed emerge and stifle things until Labor Day.
Comments