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Key Developments are Shaping Bullish Sentiment

Halfway through the month of January, the market landscape is much more constructive, even though the last half of December saw a flood of selling pressure…

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Halfway through the month of January, the market landscape is much more constructive, even though the last half of December saw a flood of selling pressure that was a huge disappointment to what was a down year for the major averages. 2023 is off to a strong start, with the S&P higher by 4.15% as of last Friday’s close. The Dow is ahead by 3.49%, the Nasdaq up 5.85% and the Russell 2000 is the big winner — up by 7.14%.

There are several key developments contributing to the sudden change in sentiment and stock performance. Here are some of the catalysts for an improving outlook:

2023 Cost of Living Adjustment (COLA): Based on the increase in the Consumer Price Index, there will be an 8.7 percent rise in the Cost of Living Adjustment (COLA) for Social Security recipients and for most retired pay and Survivor Benefit Plan annuities effective December 1, 2022. Retirees will see the change in their December 30, 2022, payment and annuitants in their January 3, 2023, payment. The increase was set right at the peak of Consumer Price Index (CPI) and will be a big net positive to retirees with the rate of inflation falling fast. It’s the largest increase since 1981, which saw an hike of 11.2% in the COLA.

Rate of Inflation Moving Lower: Total CPI declined 0.1% month-over-month in December (Briefing.com consensus 0.0%), paced by a 9.4% m/m decline in the gasoline index. Core CPI, which excludes food and energy, increased 0.3% month-over-month as expected. On a year-over-year basis, total CPI was up 6.5% — the smallest increase since October 2021 — versus 7.1% in November. Core CPI was up 5.7% versus 6.0% in November.

Dollar Weakness Reflects Risk-On Sentiment – The U.S. Dollar Index (DXY) contains six component currencies: the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. The DXY has broken key technical levels and is now in a protracted downtrend, as investors that were seeking super safe havens in 2022 are taking on more risk in stocks and other currencies.

It’s interesting to see that the DXY was breaking down in mid-November just as the year-end selling of equities was accelerating. The steep correction in the dollar is a boon to multinational corporations that should show up during the current fourth-quarter earnings season. What was a major Forex headwind (strong dollar) is now a solid tailwind (weak dollar). This fact looks likely to extend the selloff in the near term.

Housing Market Is Resilient: The market for available homes remains undersupplied, even as mortgage rates hit 20-year highs. Housing listings are still down 29% nationwide in the five years ending in October, according to Realtor.com data. Policy experts and economists estimate that the nation’s total housing shortage ranges from 1 to 5 million homes — a shocking number during a time of soaring mortgage rates.

Based on the Fed’s likelihood to hike interest rates at least once more and then pause, one can argue that mortgage rates should land at around 5.5% for the 30-year fixed rate in late 2023.

Margin Debt Is Way Down: After peaking at more than $1 trillion in December 2021, when the market hit historic highs. This is a healthy sign in that investors have solid buying power. But with margin rates up considerably, investors are likely to use margin debt more for short-term trading purposes, as opposed to buy-and-hold strategies when compared to when interest rates were super low and the bull market was in full motion.

https://www.currentmarketvaluation.com/models/margin-debt.php

High Yield Market Shows Bullish Price Action – The largest Junk Bond Exchange-Traded Fund (ETF) is the iShares iBoxx USD High Yield Corporate Bond ETF (HYG), with $18.49 billion in assets. In the world of investing, bonds trade out of fear and stocks trade out of greed. High-yield bonds have been in rally mode and piercing an overhead technical level as of last week on pretty good volume.

Lastly, the S&P 500 closed barely above its 200-day moving average. This fact is getting a lot of technical chatter, but the prior four attempts to break out failed. All of this makes this attempt off of a higher low somewhat more encouraging. I think it will take a wave of companies providing assurance about business conditions for the current quarter and further out to see a clean break above this key trend line. If this succeeds, this action will send the bears back to their caves.

Coming into this week, most sectors and stocks are technically overbought on a short-term basis. There were impressive upside moves in the small-caps, airlines, Bitcoin, gold and high-yield debt, all of which reflect a 180-degree turn in the risk profile of market participants, who are buying into the soft-landing narrative hand over fist.

There is definitely a growing amount of data to get more optimistic about, but the Fed isn’t done raising rates, the yield curve remains very inverted and personal savings are at a pre-pandemic low. The latest data show Americans are saving just 2.3%, or $2.30 of every $100 they earn after paying taxes, down from 7.5% as recently as December 2021. Historically, that’s very low. From 2015 to 2019, for example, this rate averaged around 7.6%.

As of the third quarter of 2022, Americans hold $925 billion in credit card debt, which is a rise of $38 billion since Q2 2022. The Federal Reserve of New York says this is a 15% year-over-year rise — the biggest jump we’ve seen in more than 20 years. How this will all play out next month will be intriguing, given the U.S. is a consumer-driven economy. But for now, unemployment is at 3.5%, inflation is coming under control and the market is voting with both feet that a recession is going to be averted. Now, its up to earnings season to keep the party going.

IMPORTANT ANNOUNCEMENT: We are having our Eagle Virtual Trading Event on Thursday, Jan. 19. If you haven’t signed up for this yet, there’s still time. Just click here now to sign up for free. Believe me, you won’t want to miss this online event — as we bring together all of Eagle’s investment experts at the same time to reveal our Top 6 Picks for 2023. Reserve your seat now by clicking here.

The post Key Developments are Shaping Bullish Sentiment appeared first on Stock Investor.

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Switching Jobs No Longer Pays Off Like It Used To

Switching Jobs No Longer Pays Off Like It Used To

One of the main drivers of the “Great Resignation” that saw more than 50 million Americans…

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October 15, 2023

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Switching Jobs No Longer Pays Off Like It Used To

One of the main drivers of the “Great Resignation” that saw more than 50 million Americans quit their job in 2022 was the fact that labor was in short supply, resulting in higher wages being offered by employers who struggled to fill open positions.

Switching jobs quite simply paid off, as workers were able to land significantly higher salaries by putting themselves back on the market instead of sticking with their old employer.

According to ADP Pay Insights, which is based on payroll transaction data from almost 10 million employees in the United States, the median year-over-year increase in annual pay for job switchers was between 15 and 16.5 percent for large parts of 2022. For people staying in their current jobs, the average pay increase was significantly lower, between 7 and 8 percent, or half of what job switchers were getting.

However, as Statista's Felix Richter reports, over the past few months, the labor market has shown some tentative signs of cooling, with job openings coming down from historically high levels and fewer positions remaining unfilled across industries.

As the imbalance between labor supply and demand gradually eases, wage growth naturally slows down. According to ADP, that slowdown has been much more pronounced for job changers, though, resulting in a smaller gap between pay increases of job switchers and job stayers. While there was an 8.8 percentage point chasm between the two in April of last year, the difference in median pay increases has narrowed to 3.1 percentage points by September 2023.

You will find more infographics at Statista

As a result, the number of Americans quitting their jobs has come down notably as well, putting an end to the “Great Resignation”, one of the more surprising post-pandemic labor market trends.

Infographic: The 'Great Resignation' Is Winding Down | Statista

You will find more infographics at Statista

Further, as the chart illustrates, the number of quits typically declines sharply in times of recession, as it can be very tough to find a new job during an economic downturn.

Tyler Durden Sun, 10/15/2023 - 07:35

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COVID-19 Vaccines ‘May Trigger’ Rheumatic Inflammatory Diseases: Study

COVID-19 Vaccines ‘May Trigger’ Rheumatic Inflammatory Diseases: Study

Authored by Marina Zhang via The Epoch Times (emphasis ours),

A new…

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October 15, 2023

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COVID-19 Vaccines 'May Trigger' Rheumatic Inflammatory Diseases: Study

Authored by Marina Zhang via The Epoch Times (emphasis ours),

A new review suggests that COVID vaccines "may trigger" rheumatic immune-mediated inflammatory diseases, including arthritis, vasculitis, lupus, and adult-onset Still's disease.

A health worker uses a needle and a vial of Pfizer-BioNTech COVID-19 vaccine to prepare a dose at a vaccination health centre in a file photo. (Justin Tallis/AFP via Getty Images)

On average, patients developed rheumatic diseases 11 days after vaccine administration, according to the study. Seventy-five (over 27 percent) of these patients experienced total disease remission, and about 50 percent improved following treatment. Eight were admitted to intensive care, and two died from their symptoms.

"The short time span between COVID-19 vaccine administration and the onset of R-IMIDs suggests the potential possibility of a cause-and-effect relationship," the authors wrote.

Rheumatic immune-mediated inflammatory diseases (R-IMIDs) involve inflammation that manifests in the joints, tendons, muscles, and bones due to an unknown cause.

The study, led by researchers from the National Health Service in the United Kingdom, examined 271 participants from 190 case studies published worldwide.

Over 80 percent of the patients developed symptoms after their first or second dose of the COVID-19 vaccine, and most were treated and improved with corticosteroids.

Almost 57 percent of the injured patients received the Pfizer vaccine, nearly a quarter received the AstraZeneca vaccine, and 12 percent of the rheumatic diseases manifested after the administration of the Moderna vaccine.

Reported Diseases

Rheumatic diseases may be less common than myocarditis, a known adverse event of COVID vaccination. A search on the Vaccine Adverse Event Reporting System (VAERS) found that over 3,000 cases of myocarditis have been reported after the COVID-19 vaccine, with over 2,300 cases of arthritis, over 370 cases of systemic lupus erythematosus, the most common type of lupus, and 280 cases of vasculitis. The following are rheumatic diseases that were included in this first-ever systematic review of new-onset R-MIDs after COVID vaccination.

Inflammation of Blood Vessels

Vasculitis was the most common rheumatic disease in the review, with 86 adverse events recorded. The more common vasculitis diseases affect the smaller blood vessels, causing red spots and lumps on the skin and possible organ damage. Medium and larger blood vessels can also be affected, causing tissue, muscle, and kidney damage.

One patient with inflammation in the larger blood vessels presented with fluid buildup in her lungs. Another developed inflammation in the arteries in his head and lost vision in his left eye due to reduced blood flow to his optical nerves.

Connective Tissue Diseases

Sixty-six cases of diseases affected the connective tissues. Diseases that fall under this category include lupus, an autoimmune disease affecting the skin, joints, and internal organs, and myositis and dermatomyositis, which manifest as muscle and tissue inflammation.

Two patients died of their conditions. One was a 44-year-old man who developed myositis, or muscle inflammation, and compartment syndrome in his limbs. Compartment syndrome is a painful and potentially fatal condition where pressure in muscles builds up. Another 62-year-old female died after developing diabetes and dermatomyositis, inflammation of both the skin and muscles, after getting the Pfizer vaccine.

Arthritis

Fifty-five patients developed arthritis after taking the vaccine, primarily manifesting in the knees, elbows, and ankles.

After treatment with steroids, most experienced some improvement in their symptoms, 12 went into remission, and two had persistent symptoms.

Adult-Onset Still's Disease

Twenty-two cases of adult-onset Still's disease were documented in the report. Symptoms of this rare disease include daily fever, arthritis in more than five joints, and salmon-pink rashes on the body. Six of these patients also developed cardiac problems, two of whom developed myocarditis and heart failure.

Five of the patients went into remission, while most experienced improvement in their conditions after being treated with steroids.

Other Diseases

Less common diseases include polymyalgia rheumatica, reported in 21 people. Symptoms of this disease include stiffness and inflammation in the shoulders, neck, and hips, and sarcoidosis, which occurs when inflamed tissues start to grow inside organs, causing tissue malfunction.

Molecular Mimicry Is the Leading Explanation

The authors noted the very short duration between vaccination and symptom onset, with 11 days being the average duration. This duration is similar to those found in other studies investigating myocarditis side effects after COVID-19 vaccines. The authors reasoned that the vaccine may have been a "trigger" for the rheumatoid diseases.

However, some of the patients might have been predisposed to rheumatic diseases, the authors reasoned. Additionally, some might have been predisposed to having a highly inflammatory response to mRNA vaccinations, leading to rheumatic symptoms like joint stiffness and inflammation.

Molecular mimicry, which occurs when the body mistakes foreign substances for its own and mounts an immune response, is the leading explanation for the development of these autoimmune diseases. The authors reasoned that vaccine adjuvants like aluminum may be structurally similar to human proteins. Therefore, the body might have mistaken self-tissue while attacking these adjuvants, perceived as foreign invaders.

However, many studies have shown that the spike proteins on the surface of the COVID-19 virus share structural similarities to human proteins. One study found that antibodies that reacted to spike protein could also react to nearly 30 different human tissues. If the spike proteins induced by the COVID-19 vaccines are similar to the original viral spike proteins, then the vaccine spike proteins may also trigger autoimmunity.

Another possibility is that mRNA vaccines may trigger the formation of inflammasomes. Inflammasomes are clusters of proteins that signal inflammation and viral elimination. This can also cause immune cells to become hyperactive and damage self-tissues in an attempt to clear the vaccine.

Tyler Durden Sun, 10/15/2023 - 09:20

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Inversions, Bear Steepening Dis-Inversions, and Recessions

Does it matter if spreads are dis-inverting because short yields are falling, or long yields are rising? MacKenzie and McCormick (Bloomberg) say yes. With…

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October 15, 2023

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Does it matter if spreads are dis-inverting because short yields are falling, or long yields are rising? MacKenzie and McCormick (Bloomberg) say yes. With long yields rising…

If it looked at first glance as though the shift in the yield curve was a solidly positive sign — one indicating that the economy is now at less risk of a recession than it was — that’s probably not the case. True, it shows traders aren’t expecting the Fed to shift into firefighting mode soon. Even so, it’s almost certain to further dampen the economy as it ripples through to mortgages, credit cards and business loans. That will tighten financial conditions further, which may be a welcome development to the Fed. The risk, though, is that it hits the brakes so hard that the economy stalls completely.

Does having a bull steepening prevent a recession? Figure 1, covering the Great Moderation, is somewhat conducive to that hypothesis, at least eyealling it. h

Figure 1: 10 year-3 month Treasury spread, % (blue, left scale), and 3 month change in 10yr-3mo spread, ppts (green, right scale). October observation for data through 10/13. NBER defined peak-to-trough recession dates shaded gray. Red arrows when 3 month change is positive during period when dis-inversion is occurring. Source: Treasury via FRED, NBER, and author’s calculations.

The evidence in favor of the bear steepening hypothesis is stronger when evaluating the proposition formally. I estimate probit models for (i) spread only, (ii) spread and short rate, and (iii) spread, short rate and 3 month change in spread. The 3 month change in spread is statistically significant and adds to the pseudo-R2.

(ii)   Pr(recession=1)t+12 = 0.813 – 76.11spreadt + 9.80itshort

Pseudo-R2 = 0.28, Nobs = 241, bold denotes significant at 5% msl.

(iii)  Pr(recession=1)t+12 = 0.736 – 98.37spreadt + 11.99itshort + 98.28Δ3spreadt

Pseudo-R2 = 0.34, Nobs = 241, bold denotes significant at 5% msl.

The recession probabilities are shown below.

Figure 2: Recession probability 12 month ahead estimated over the 1986-2023M10 period for spread (blue), for spread and short rate (tan), and spread, short rate, and 3 month change in spread (green). NBER defined peak-to-trough recession dates shaded gray. Source: NBER, and author’s calculations.

The bear-steepening specification implies 90% probability of recession in 2024M09, while it’s only 66.4% using the spread + short rate (peak probability for this specification is May 2024). Does this make me more pessimistic about avoiding a recession? Not really; the Ahmed-Chinn specification with the foreign term spread (but no steepening measure) was about 90.8% probability for September 2024.

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