Heavy Bond Pressure Continues to Hurt Stocks
The dismal market action continues.
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Dismal market action continued on Tuesday morning. The most notable development was new lows in bonds despite oversold technical conditions. Oil is lower, but it appears to be disconnected from bonds as the supply of paper is just too great to absorb.
Breadth isn’t quite as poor as it was on Monday, with about 46% of stocks positive, but we are already at about 230 new lows as the Russell 2000 continues its downtrend. The Magnificent Seven are weak again, and the recent pattern of a mega-cap bounce after a down day didn’t hold. Meta Platforms (META) has lost its glow, but there is some interest in chips, due in part to NVIDIA’s (NVDA) $150 billion increase to its share buyback authorization. The VanEck Semiconductor ETF (SMH) is up about 1.5%, while the SPDR S&P 500 ETF (SPY) is flat.
Bonds Aren’t Taking Cue From Oil
Bonds got a little relief early as oil eased on hopes for diplomacy with Iran, but it didn’t last. The iShares 20+ Year Treasury Bond ETF (TLT) hit a new low shortly after the open. That tells us the bond market isn’t worried primarily about oil. It is worried about sticky inflation outside of energy and a Fed that is still in hiking mode, with PCE data due Wednesday. The pressure is heaviest at the long end, where investors are demanding a better rate if they are going to hold government debt for decades.
That is the dilemma I’ve been discussing. AI strength is keeping the pressure on inflation and on the Fed, and a dip in oil isn’t enough to change that.
Favorite Takes a Hit
One of my favorite names, National Energy Services Reunited (NESR), which provides oil services in the Middle East, is taking a hit, and I can’t find any fundamental development behind the move. Volume is relatively light, and there has been some insider selling that is probably contributing. The bigger difficulty is the risk of greater attacks on the Saudis by Iran now that Iran is no longer able to move any oil, and there is some panic. That will impact oil services in the short term but may lead to more business in the future. This stock has some of the best estimates on my radar, but it trades at a discount because of the great uncertainty in the Middle East. I don’t see any specific news. I had a partial stop trigger but will just hold the remainder for now. Â
Better Late Than Early
I outlined my overall market thesis in my column on Tuesday morning. I’m expecting better action in the fourth quarter, but the timing is problematic, and I’m always willing to change my mind as conditions change. The important thing now is to have a game plan and make sure you execute it. I want to continue adding to some favorite names, but I’m in no hurry.
I have to keep reminding myself to stay patient and not worry about buying the absolute turn. The main problem when you try to buy an exact low is that you can only do it prospectively. You can’t buy the exact low after the fact. You can only buy it if you make a prediction with great precision, which nobody can do other than by luck.
My motto is “better late than early.” You aren’t going to miss out on the big move if you buy after a bounce has started, and you will also reduce risk. If you buy after a bottom, the bottom becomes the natural stop-out point, and then you can try again.
A couple of big caps that I will look to buy slowly in this poor market are Amazon (AMZN) and SpaceX (SPCX). I’m not doing anything right now, but I’ll keep you posted when I make some additions.
At the time of publication, DePorre was long NESR, AMZN and SPCX.
