Worries About Economic Slowing Are Increasing
The indexes are hiding it, but concerns about a slowing economy are weighing on many stocks.
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Late-day rallies have helped the major indexes avoid major technical damage, but there is troubling price action under the surface, and a rally in bonds indicates growing economic concern. Market players are looking ahead to a possible soft jobs report on Friday after weak JOLTS jobs opening and ISM Manufacturing news.
Over the past year, the market has typically had a positive response to weaker economic news because it is viewed as a reason for the Fed to cut interest rates sooner rather than later. However, there are now some building worries that inflation may stay sticky even if the economy does start to falter. The word "stagflation" isn’t being used widely, but the specter is in the air.
There has been faltering price action in many smaller and secondary stocks, but the big-cap technology names are covering up the damage. The Magnificent Seven names are viewed as less economically sensitive, so they often serve as safe havens when there are concerns about inflation or growth. While most of these stocks have aggressive valuations, that has not prevented buyers from seeking the safety of relative strength.
One of the biggest worries right now is a sharp spike in bonds. Bonds are the traditional safe haven in times of recession, and the 20+ Year Treasury Bond Fund TLT is back over its 200-day simple moving average as yields have fallen sharply in the past week.
For a while, the market enjoyed some strong rotational action out of the Magnificent Seven and semiconductors and into the rest of the market. However, that action has sputtered out, and even a brief fling of meme trading has fizzled quite quickly. Speculative interest has slowed as economic worries have started to accelerate.
The indexes are still covering up what is happening with the broader market, but there is some troubling action, and there is likely to be a very strong response to the employment news that will be released on Friday morning.
My game plan is to raise some cash and be very selective with any new buys.
At the time of publication, Rev Shark had no positions in any securities mentioned.
