Weekly market Recap – October 24th

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A little more pain ahead if we examine the past...

  • There are currently 70% of stocks below their 52-week high.
  • In the past during major bear markets, we peak at 80% prior to a recovery in equity markets.
  • In the past, ISM new orders had often indicated a recessionary trend.

  • Above you can see we are approaching the pandemic lows of ISM new orders.

  • On a brighter note, it does not appear to be as weak as it was during the financial crisis of 2008.

  • Another observation is that this indicator tends to be leading, as it dipped below 50 in 2007 PRIOR to the crisis. This makes ISM an important indicator to watch.

  • Inflation has consistently out-paced wage growth for 18 months.
  • Although unemployment is low, this trend will slowly drain US bank accounts.

  • In a way, the Fed wants to see less spending, but the pandemic stimulus caused a bloating of savings rates as well as spending.

  • At the same time, interest rates continue to rise, and the 10-year Treasury is near a 14-year high

  • Consumer confidence in both Europe and the US remain below pandemic lows.

  • The depletion of spending power is showing up in spending habits as well.

  • This may spill over into the holiday season, as consumers remain concerned about gas prices and inflation.

  • The third negative read of US leading indicators had been an accurate recession forecaster in the past.
  • Container rates are normalizing to pre-pandemic levels, this illustrates demand destruction of the consumer combined with a shift out of the “stay at home and order stuff on Amazon” economy.

  • This is one of the first “positive” signs that higher rates are beginning to effect demand and slow things down.

  • Investors are remaining passive in ETF investments despite outflows out of active funds.

  • The strength of ETF investing even during uncertain times illustrates confidence in financial markets as a whole, but lack of confidence in professional money manger’s ability to navigate these markets.

Not All “Tech”is Being Treated the Same

  • Investors are pulling money out of “emerging market” technology stocks that are more speculative and sensitive to interest rates.
  • They are favoring tech companies with actual products and proven revenue generation.