The Correction Is Over As Market Rises. Time To Buy Stocks?

What To Watch Today

Economy

  • 8:30 a.m. ET: , August preliminary (0.6% expected, -0.1% in July)
  • 8:30 a.m. ET: , August preliminary (0.5% expected, 0.8% in July)
  • 8:30 a.m. ET: Non-defense capital goods orders excluding aircraft, August preliminary (0.3% expected, 0.1% in July)
  • 8:30 a.m. ET: Non-defense capital goods orders excluding aircraft, August preliminary (0.9% in July)
  • 10:30 a.m. ET: , September (11.0 expected, 9.0 in July)

Earnings

  • 4:15 p.m. ET: Aurora Cannabis (NASDAQ:) is expected to report adjusted losses of 27 Canadian dollars on revenue of 56.38 million Canadian dollars

Politics

  • “The next few days will be a time of intensity” is how U.S. House of Representatives Speaker Nancy Pelosi put it to her members over the weekend. Lawmakers return to Washington today with votes likely this week on averting a government shutdown, lifting the debt ceiling, the bipartisan infrastructure deal, and the multitrillion dollar budget reconciliation package. First up, Senate Majority Leader Chuck Schumer is pushing for a vote at 5:30 p.m. ET on the first two items but Republicans have vowed to block the effort.
  • Today is also the deadline Senator Pat Toomey (R-Pa) set for ideas on how Washington should regulate cryptocurrency. The issue could then come up again tomorrow as U.S. Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell are set to testify before Toomey and the Senate Banking Committee.

Market Back On A Buy Signal To Close Out The Quarter

Portfolio managers will be repositioning portfolios to be in the “right stocks” as the quarter end reporting approaches. As noted in this past weekend’s newsletter:

“Notably, two essential things occurred this week. The market regained its 50-dma and triggered our RIAPRO Money Flow “buy” signal. Both suggest that bulls have regained control, and we could see some follow-through buying next week.”

SPY Daily Chart

SPY Daily Chart

If the MACD signal turns this week, such will confirm the current “money flow” signal suggesting higher prices for stocks near term. Such is why we increased our exposures last week, and will look to return to full allocation levels quickly.

Stocks To Buy

The following are the top 10 companies with the strongest relative strength.

Strongest Momentum Stocks

Strongest Momentum Stocks

Here are the top 10 strongest S&P 500 companies on MACD buy signals.

Top 10 Strongest S&P 500 Companies On MACD

Top 10 Strongest S&P 500 Companies On MACD

New Home Sales

August came in above expectations at 740k (+1.5% MoM) versus a consensus of 708k. The median new home sales price grew to $390,900, which represents a massive increase of +20.1% YoY.

New Home Sales

New Home Sales

China Crackdown Continues

Cryptocurrencies are selling off following news that the PBOC has declared all cryptocurrency transactions illegal. According to ZeroHedge, “In a statement the People’s Bank of China said the latest notice was to further prevent the risks surrounding crypto trading and to maintain national security and social stability.” Prices have previously dipped and recovered from attempts by the CCP to squash digital currencies. Will this time be different?

Cryptocurrencies Sell-Off

Cryptocurrencies Sell-Off

Costco Earnings

Costco Wholesale Corp (NASDAQ:) reported for its fourth fiscal quarter yesterday after the close. GAAP EPS of $3.76 comfortably beat expectations of $3.58. Fourth quarter revenue came in at $62.7B (+17.4% YoY) versus the consensus estimate of $61.5B. Sales growth was primarily driven by comparable store growth of 15.5% YoY, with double digit growth in all operating segments. We hold a 1.5% position in the Equity Model.

Costco Earnings Chart

Costco Earnings Chart

Bonds Get Routed

Bond yields rose significantly yesterday, following a decent performance after the Fed on Wednesday. While too early to tell if yesterday’s move is just technical, it may be an early warning from bond investors that the Fed is behind the curve in tapering. Market implied five-year inflation expectations rose from 2.41% to 2.48%, supporting our concern.

Today bonds are being punished further, with the yield pushed up 4 bps to 1.45% by mid-morning. If the 10-Y yield remains elevated through the close, it will have reached its highest point quarter-to-date.

Did Ending Jobless Benefits Help?

The Wall Street Journal helps answer our question. Per their article, States That Cut Unemployment Benefits Saw Limited Impact on Job Growth:

“States that ended enhanced federal unemployment benefits early have so far seen about the same job growth as states that continued offering the pandemic-related extra aid, according to a Wall Street Journal analysis and economists.” The graph below shows there is no discernable difference in job growth between states that ended benefits during the summer and the states in which they just expired.

Growth Comparision

Growth Comparision

Fed Speakers

Starting today and through next week, Fed members will make their thoughts known through a plethora of speaking engagements.

Fed Speakers

Fed Speakers

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