Market Analysis

Straight Talk #12

With a furious rally in the last hour (when else?) markets closed the month of July slightly above the June highs bringing the S&P 500 to green on the year. This following GDP prints of -5% and – 32.9%  for Q1 and Q2 respectively. Bears may be rightfully asked: If you can’t get anything but a momentary decline in markets with historically disastrous readings such as this then what will it take? After all markets rose in 2019 on flat earnings growth and are rising in 2020 with negative earnings growth. Are markets destined to rise forever and are bear markets simply a thing of the past as the overlords of markets, the central bankers, are simply too powerful and determined to never let the consequences of recessions, slowing growth and ever expanding valuations matter?

The dual mandate of the Federal Reserve says Guy Adami appear to be the S&P 500 and the Nasdaq, consequences be damned.

Yet the price action this week in particular again highlighted the distortions in markets that keep building with ominous red flags screaming danger as the rally continues to crawl higher emboldened by stunning earnings reports by some of the tech monopolies. $AAPL added $170B in market cap just on Friday. Gold continues to rally vertically while yields continue to sink to historic lows and the US dollar saw its biggest monthly drop in years while again the broader market is showing weakening underneath with overall market valuations continuing to soar. GDP has been dropping and a few tech stocks are producing overall market cap to GDP extensions we have never seen before far beyond even the tech bubble of 2000:

The classic definition of an asset bubble.

And make no mistake, the internal picture of this market is atrocious.

Take just Friday’s action as an example:

While the $DJIA manage to eek out a gain by the end of the day the principle price driver was one stock:

And $SPX went positive on Friday as $NYAD advance/decline was sitting in the -1400 range:

And even the furious rally into close couldn’t get internals to positive. Improved yes, but not positive.

Which speaks to equal weight showing a marked weaker reading versus the June highs:

What’s the next for these markets? Prospect of yet another stimulus package as debt levels have already soared to a historic 136% debt to GDP?

And yes, debt has consequences as Fitch downgraded the outlook for the United States to negative from stable, warning of high debt and deficits made worse by the coronavirus downturn. But for now markets continue to thrive on stimulus headlines at a time when market valuations are the highest they’ve ever been relative to the economy, but the dangers of a meaningful reversal keep mounting especially as the US dollar just hit key technical trend line support on Friday:

Could the dollar be reversing in August and bring about a long awaited correction or will the forces of intervention continue to succeed in expanding this historic asset bubble? And let there be no doubt for that’s exactly what we are witnessing here:

We’re discussing all these issues in our Straight Talk program and as always we’re trying to keep it real:

Note: I’ll also be posting a separate Market Video focusing on the latest technical implications this weekend (For those not already signed up for these videos please see link to sign up).

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23 replies »

  1. Back in 2011 the S&P CRA downgraded US debt using these assumptions below. Today we’re at 27 trillion and 138% to GDP.
    Downgrade coming!

    “In taking a longer term horizon of 10 years, the U.S. net general government debt level with the current assumptions would be $20.1 trillion (85% of 2021 GDP). With the original assumptions, the debt level was projected to be $22.1 trillion (93% of 2021 GDP).”

    • If only the credit rating agencies wouldn’t get sued for downgrading US debt rating. They need whistle-blower protection.

      “Two weeks after the August 2011 S&P credit rating agency downgrade, the SEC and Department of Justice announced that S&P was under investigation.”Sued for $5B.
      “Two weeks after the second downgrade by Egan-Jones in April 2012 to AA, the SEC voted to bring administrative action against the firm regarding years-old activity.” Settled in 2013.

    • Well, boyz and girlz, it looks like the long-unfilled gap Sven has been talking about has been filled. Now the market can crash. I am calling a top her at /ES 3,301 (will no doubt have egg on my face in a matter of minutes)

  2. Have you ever read ‘1984’ (George Orwell’s book)?
    It seems like we are now living in a world portrayed by this book.

  3. Excellent commentary. It helps to listen to your discussion. It acts as a counterpoint to stock market action which has rallied wildly beyond fundamentals. Markets are awash with central bank liquidity. It is the rising tide–but does not lift all boats equally. Three companies increase their value by $115 billion this week while the rest of the market slowly sinks.

  4. When will the debt matter?
    When one or all of the three credit rating agencies have the courage to downgrade the US credit rating.

  5. Markets ripe for a sell off —no stimulus and Unfilled gaps on Apple 🍎 and FB and Amazon Nasdaq 100 failed to retest historic high on July 13 appreciate your analysis —Sven

  6. Look 👀 America hemorrhaging…dollar deteriorating weak into October markets vulnerable Federal Reserve warn—( tool box ) preposterously comical what does that mean? —-no stimulus will put pressure on markets massive unemployment with no benefits

  7. Excellent analysis on “ Gold “ if not physically own it means nothing ..Venezuela -example unable to possess gold that they paid…Bank of England it’s a thief

  8. Sven Henrich@NorthmanTrader·1h
    So you know what they really think of debt & deficits at the Fed.
    There’s no one in charge that questions the echo chamber they have created for themselves.

    The credit rating agencies need to do their job and downgrade the debt.

    • If households and corporations are not making their mortgage/lease payments then downgrade those bonds and mortgage back securities.

      Credit card companies are already starting to reduce credit card limits. If FICO scores are at jeopardy for individuals then so should corporate debt ratings.

  9. let’s face it: this is total insanity…and it will end in a total fiasco….as it always doen when the “printing machine ” is used to try to solve a debt problem. Just study history…

  10. When will this house of (debt) cards fall apart? When the bond market will say stop and interest rise because people ….as happened in Greece in 2010…10 year interest rates rose dramatically from 3% to 30% in less than a year. As long as interest rates remain this low, the spending lunacy will continue

  11. Debt has created this ‘fake it til you make it’ generation which now needs another stimulus to maintain their fake lifestyle. This generation believes they’ve actually built a sustainable lifestyle. In actuality it was built by overextending themselves that now requires a stimulus check to maintain their overextended lifestyle.

    ‘Only when the tide goes out do you discover who’s been swimming naked.’ Warren Buffett

  12. …and now the Fed is living the same way…trying to keep the stock market up until the economy recovers.


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