Market Brief – Wednesday 11/07/18

With the election behind us, stock market Bulls shot the market up in early trading and are hoping for a big rally to take stock prices to new all-time highs. Stocks may not rally for the reason most people think. Hedge-fund managers and most active managers have performed poorly for the past two years. Hedge fund managers have done particularly bad this year, with some down double-digits, which may force them to play chase against retail investors who bought in ahead of the election.

Interest rates were down as the supply of unsold homes has reached their highest level since 2011, while mortgage applications have tumbled back to their 18-year lows. Clearly higher interest rates are not a function of inflation, otherwise, home buyers would be able to afford higher prices and higher mortgage rates. Yields will eventually fall.

The EIA reported crude and gasoline inventories rose more than expected. With oil production rising and demand falling, this is an indication of a slower global economy. Since interest rates have been coupled with oil prices for the past two years, this indicates Treasury yields should be falling. Oil prices fell after the report.

Today’s 30-year Treasury auction didn’t see as much demand as yesterday’s 10-year Treasury auction. Domestic bidders have disappeared with no comment from the U.S. Treasury to what is going on. Foreign bidders took a healthy 59.1% of the auction, which left nearly the rest to the dealers. As dealers take on more bonds, look for yields to fall so they can unload their inventory.

Stocks finished strong, but trading volumes were -35% below their 20-day average. This is not a sign the big money is moving back in. This indicates buyers are willing to pay any price to get in and the sellers are making them pay a huge premium.

Treasury yields were flat on the day, even though there has been strong foreign buying of Treasuries this week. A report came out late yesterday showing pension funds were big buyers of Treasuries in October. So far, all the claims that nobody wants to buy Treasuries are false.

Physical gold was flat, and the gold miners were down slightly. Agricultural commodities were a smidge higher on the day as buyers overcame sellers. This sector remains very close to a technical breakout to the upside.