Momentum Monday – If You Like Industrials…And Hate Clouds…This Market Might Be For You

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Good morning…

It was a nasty week for the software people (like me). It was an OK week if you like industrial stocks.

The FED is in control of the markets right now and they continue to say that more rate increases are coming.

One year T-bill rates are at 4.9 percent so I am hiding out there, but most of the stocks remaining in my personal portfolio are down over 50 percent. I have done a terrible job hiding my remaining stock portfolio from the FED.

As always, Ivanhoff and I tour the markets looking for momentum and you can watch/listen right here. I have embedded it below for people that want to watch on the blog:

Here are Ivanhoff’s thoughts…

Last week, it became clear that the Fed is not pivoting anytime soon. The price action in commodities and the latest payroll report confirmed Fed’s fears. Inflation is sticky and the Fed will have to remain on its current course of raising interest rates and reducing its balance sheet. When the Fed removes liquidity from the market, most stocks are likely to get a lower valuation.

Despite the selloff in the indexes, where tech stocks were hit the hardest, we remain in a market of stocks environment. There are good opportunities on both the long and the short side. Lately, more and better opportunities are on the short side, which is natural – most stocks follow the general direction of the market.

The main indexes continue to make lower highs but they haven’t a new lower low yet. The main factor that saved the market from dropping last Friday was the decline in the US Dollar which has been highly negatively correlated to stocks this year. The message is clear. No rally in equities can sustain without the US Dollar falling. Can the latter really happen when the Fed is a lot more strict than other central banks with it comes to raising interest rates? Probably not, at least not for too long.

There are still quite a few companies left to report earnings. One of the clear trends this earnings season is the decimation of software stocks. In fact, the cloud ETF, WCLD dropped almost 6% on Friday making new 52-week lows. In the meantime, crude oil was up 5%, and industrial metals ETF, XME was up 7%. This is a typical reflation move. We will know more next week, but if the moves from Friday follow through, the market is certainly not worrying about recession just yet.

Don’t forget that midterm elections in the US are on November 8th and stocks tend to be extra volatility around in the days before and after them.

Disclaimer: All information provided is for educational purposes only and does not constitute investment, legal or tax advice, or an offer to buy or sell any security. For full disclosures, click here.