Market Brief – Thursday 11/29/18

After a big 3-day rally in equities, Treasury yields finally reacted by falling in overnight trading. Equity investors are hopeful the Fed will pause, and a trade deal will be struck this weekend.

Pending home sales fell -2.6% MoM in October after analysts were expecting a +0.5% MoM gain. This brings the year-over-year rate of change for pending home sales to -4.6%, which is not a good indication of a booming economy.

Income and spending were up big in October after slowing the prior two months. The Fed’s preferred gauge of inflation, or Core PCE, slowed from their target of +2.0% YoY to +1.8% YoY. Long-time clients and readers know that inflation expectations follow the money supply, which has been decelerating for over two years. Look for lower consumer prices in the future.

Wages for private workers increased +4.7% YoY and wages for government workers rose +2.9% YoY, yet the savings rate fell to +6.2%, the lowest level since December 2017. Rising consumer prices, higher interest rates, and large debt levels continue to weigh on the average American.

Jobless claims rose to an 8-month high, which on the surface isn’t a big deal. When jobless claims start rising from an extremely low level, as they are now, recessions tend to come quickly.

Technical resistance levels to watch are 2,735 on the S&P 500, 6,900 on the Nasdaq-100, and 25,335 on the DJIA. The trend-following CTA computer models went back into the market on Tuesday and are close to going ‘Max Long,’ meaning they are fully invested. The CTAs have been ‘Max Long’ several times since the peak, an indication that they are losing money in this choppy market and that they cannot push the market to new all-time highs. Should the recent 3-day rally fail to hold, the sell signals for the CTAs aren’t far below.

The Federal Reserve released the minutes from their most recent meeting, which showed expectations for one more rate hike in 2018, followed by three more in 2019. It appears the computer algorithms and stock market got excited yesterday on the belief the Fed will pause, but the meeting minutes suggest the Fed will continue to gradually raise rates. There were no changes to the Fed’s balance sheet unwinding program.

After breaking the previously identified support levels, equities looked like they were going to continue to rally, but an hour before close, stock prices fell. The S&P 500 closed two points over resistance, the Nasdaq-100 below resistance, and the DJIA four points over. I mentioned in the Wednesday video that the S&P 500 may attempt to rally over its 200-day moving average and 50-week moving average, which are very close to the same price level, and the S&P 500 came close to both but didn’t close over either.

Treasury yields were lower on the day, physical gold was flat, the gold and silver miners were down, and agricultural commodities closed higher off a key support level. Ten-year Treasuries did hit 3% and as expected, short-sellers came in, but without the strength, they have exhibited in the past.