For subscribers of our “Daily Trading Signals”, we now also include a “Weekly Market Report”, where we provide a weekly deep-dive on the market, including fundamentals, technical, economics, and portfolio management:
Last week’s economic discussions centered around the resilience of the U.S. economy, which displayed a robust growth trajectory through the third quarter of 2023. The annualized GDP growth rate of 4.9% for the quarter marked the highest since 2021, significantly outpacing the typical trend growth.
This expansion was largely fueled by personal consumption, a critical driver of the U.S. economy, accounting for about 70% of the GDP.
Despite this, concerns were raised about the sustainability of such consumer spending levels, especially as we approach the critical holiday shopping season. Analysts are pondering whether the American consumer can maintain this momentum given certain emerging constraints.
Several indicators suggest potential headwinds for continued consumption at current rates. Notably, household savings rates have dwindled to post-pandemic lows, with the stimulus-induced financial cushion seemingly depleted. Concurrently, credit card debt in the U.S. has surged to over $1 trillion, with delinquencies on the rise—a trend that could necessitate a pullback in consumer spending.
Additionally, the Federal Reserve’s Senior Loan Officer’s Survey indicated that banks are maintaining stringent lending standards, which could further suppress consumption by limiting access to credit for consumers and businesses alike.
These factors, combined with geopolitical uncertainties and the looming threat of a U.S. government shutdown, could dampen consumer sentiment and spending. However, a silver lining exists: a potential slowdown in consumption might ease inflationary pressures and forestall further Federal Reserve rate hikes, ultimately benefiting the financial markets and investors.
Investors will have their hands full in the coming week with a suite of critical financial disclosures. Retail giants Walmart, Target, Home Depot, and Macy’s are all queued up to report earnings, which will offer a peek into consumer spending habits as the Census Bureau also releases October’s national retail sales data.
These reports could be pivotal in shaping market sentiment, especially as the holiday shopping season looms on the horizon, a period crucial for retail profitability.
In addition to the retail sector’s performance, the week will also cast light on broader economic indicators.
The October Consumer Price Index (CPI) will provide fresh insights into inflation trends, while housing market health checks will come from reports on last month’s housing starts and the National Association of Home Builders’ Housing Market Index for November.
Meanwhile, a significant macroeconomic risk hangs over the market as the deadline for the national budget decision approaches on Nov. 17. Without Congressional action to pass spending bills or another stopgap measure by Friday, the government could face a shutdown, with potentially wide-reaching consequences for the economy and markets.
Daily Trading Signals (Highlights)
AUDUSD – The recent pullback in prices offer a low-risk shorting opportunity.
EURJPY – After breaking out from an “ascending triangle”, prices are heading up to test the next major resistance level.
AUDCHF – After hitting our TP, prices have gone back to test the top of the trend channel, giving us another shorting opportunity.
Spencer is an avid globetrotter who achieved financial freedom in his 20s, while trading & teaching across 70+ countries. As a former professional trader in private equity and proprietary funds, he has over 15 years of market experience, and has been featured on more than 20 occasions in the media.
For subscribers of our “Daily Trading Signals”, we now also include a “Weekly Market Report”, where we provide a weekly deep-dive on the market, including fundamentals, technical, economics, and portfolio management:
Stocks saw a significant uptick last week, driven by encouraging economic indicators and a change in the Federal Reserve’s tone, which led to a dip in interest rates. The Federal Reserve, as anticipated, did not alter interest rates at its recent meeting, but communicated a more measured approach to future rate changes. This stance aligns with our belief that the Fed may conclude its cycle of rate hikes.
The most recent jobs data also gave investors reason to be optimistic, suggesting that the labor market is cooling just enough to further reduce inflation while remaining strong enough to sustain consumer spending and stave off a deep recession.
Although the path ahead may not be entirely without obstacles, the combination of recent market adjustments, positive economic signs, a potentially steady Federal Reserve, and traditionally strong seasons for stocks lead us to believe that there is a strong argument for the markets to gain traction as we approach the end of 2023 and look ahead to 2024.
Goldman Sachs’ revised inflation predictions hint at a silver lining with lower expected core CPI and PCE inflation rates by December 2024. These forecasts, converging with the Federal Open Market Committee’s estimates, suggest that inflationary pressures might ease, with slowing wage growth and a significant projected decrease in shelter inflation. As a result, the Fed seems poised to maintain its fed funds rate until late 2024.
These developments, paired with last week’s market rebound led by the tech sector and investors’ keen focus on Treasury yields and forthcoming policy announcements, paint a complex picture of the current economic landscape, where optimism in certain quarters is tempered by caution in others.
In the coming week, investors should brace for a flurry of earnings reports from major players across various industries. Notable companies such as Uber Technologies, UBS, and Occidental Petroleum are slated to release their financials, providing insight into sectors from tech to banking to energy.
Automotive enthusiasts will be watching Honda Motor Company and Rivian Automotive, while media and entertainment sectors will be eyeing the earnings from The Walt Disney Company and Warner Bros. Discovery. The performance of these companies could signal broader economic trends and potential shifts in market dynamics.
Economic indicators will also be in the spotlight, with the New York Fed’s quarterly report on household debt and credit shedding light on the financial health of American consumers. This report, due Tuesday, is particularly pertinent as it reflects the state of U.S. households in the face of current inflationary pressures.
At week’s end, the University of Michigan will offer a more immediate pulse on consumer mood with the release of its Consumer Sentiment Index for November. This data is crucial as consumer confidence levels have a direct impact on spending behavior and, consequently, the overall economic outlook.
Daily Trading Signals (Highlights)
USDJPY – Prices finally came close enough to our TP to close the position, congrats to all those who followed this trade! 💰🔥💪🏻
S&P 500 (US500) – Prices have rebounded from the bottom of the price channel, and is now at a crucial level of many confluences:
1. all 3 EMAs
2. down trendline
3. support-turned-resistance level
Will wait on the sidelines to see which way the breakout happens.
20-year Treasury Bonds ETF (TLT) – Could this finally be the turning point?
Spencer is an avid globetrotter who achieved financial freedom in his 20s, while trading & teaching across 70+ countries. As a former professional trader in private equity and proprietary funds, he has over 15 years of market experience, and has been featured on more than 20 occasions in the media.
https://synapsetrading.com/wp-content/uploads/2023/05/Thumbnail-banner-weekly-market-wrap-x3.png6301200Spencer Lihttps://synapsetrading.com/wp-content/uploads/2019/10/logo.jpgSpencer Li2023-11-07 11:47:322023-11-22 13:38:29Weekly Market Wrap: Strong Rally in the Stock & Bond Market!
For subscribers of our “Daily Trading Signals”, we now also include a “Weekly Market Report”, where we provide a weekly deep-dive on the market, including fundamentals, technical, economics, and portfolio management:
Last week marked significant movements in the financial markets, with notable fluctuations in both stock and bond markets. One of the standout observations was the considerable shift in long-term interest rates over the past three months, indicating market expectations for persistently high rates, evident from the 20-year bonds carrying interest rates above 5%.
This sentiment was mirrored in the tech sector, where major companies like Alphabet and Amazon.com experienced substantial declines in stock prices. Alphabet’s underwhelming performance in its cloud business notably impacted its market capitalization, creating ripples across major indices like the Nasdaq and the S&P 500 due to the significant weight of these tech stocks.
The bond market too was not immune to turbulence, as exemplified by the 10-year Treasury note yields hitting a 16-year high, signaling potential headwinds for debt-reliant companies due to rising borrowing costs. The repercussions of these market movements were broad-based, affecting not just tech stocks but also sectors like healthcare, real estate, and small-cap stocks.
In contrast to this, Meta Platforms painted a more complex picture with its stock initially rising post better-than-expected earnings, only to retract due to cautionary statements from the company’s finance chief, showcasing the market’s volatility to earnings reports and forward-looking statements.
Amidst these market shifts, companies are recalibrating their operational structures through layoffs and cost-cutting, reflecting efforts to adapt to the changing economic landscape.
Despite the tumultuous week in traditional markets, alternative investments like Bitcoin seemed to retain investor interest, hinting at a complex risk appetite amidst macroeconomic concerns of slowing growth and rising borrowing costs.
This week, attention will be drawn towards a slew of earnings reports and central bank meetings, offering insights into both corporate performance and monetary policy directions. Companies like Apple, McDonald’s, Pfizer, AMD, Caterpillar, Stellantis, Qualcomm, PayPal, Airbnb, and Starbucks are all set to release their earnings, providing a comprehensive look at various sectors of the economy.
Simultaneously, key central bank meetings, including the U.S. Federal Reserve, Bank of England, and Bank of Japan, will be closely watched for any changes or indications in interest rates, which could have significant implications on global financial markets.
On the economic data front, the U.S. is set to release its nonfarm payrolls report for October and updates on home prices and PMI survey readings, shedding light on the labor market and broader economic conditions.
In the eurozone, preliminary GDP and inflation readings for the third quarter will be available on Tuesday, offering a snapshot of the region’s economic health. These data points, combined with the earnings reports and central bank decisions, will provide investors and policymakers with crucial information, making it a critical week to stay informed and make strategic decisions.
Daily Trading Signals (Highlights)
Bitcoin (BTCUSD) – Following up from last week, prices have surged up to $34,000, and are up 40% from the swing low! Congrats to those who had the patience to hold on! 💰🔥💪🏻
S&P 500 (US500) – Following up, prices are going down as predicted, and nearing our TP! Congrats to those who shorted! 💰🔥💪🏻
Spencer is an avid globetrotter who achieved financial freedom in his 20s, while trading & teaching across 70+ countries. As a former professional trader in private equity and proprietary funds, he has over 15 years of market experience, and has been featured on more than 20 occasions in the media.
https://synapsetrading.com/wp-content/uploads/2023/05/Thumbnail-banner-weekly-market-wrap-x3.png6301200Spencer Lihttps://synapsetrading.com/wp-content/uploads/2019/10/logo.jpgSpencer Li2023-11-01 04:28:582023-11-22 13:38:50Weekly Market Wrap: Mixed Earnings a Red Flag for Stocks?
For subscribers of our “Daily Trading Signals”, we now also include a “Weekly Market Report”, where we provide a weekly deep-dive on the market, including fundamentals, technical, economics, and portfolio management:
Last week, economic stability in the U.S. seemed a facade as consumer sectors, notably staples and discretionary, showed significant declines.
High-profile retailers like Dollar General and Target faced reduced spending, a fallout from inflation and pricier fuel. This downtrend made consumer stocks less attractive, pushing investors towards funds outside the consumer-goods sector.
Despite a few exceptions like Costco and Walmart, the overall retail sector struggled, prompting a cautious sentiment among investors. Consequently, there’s a noticeable pivot towards historically resilient investments, with companies like Nike and Mondelez International coming into focus.
Market volatility defined the week, with Federal Reserve Chair Jerome Powell’s comments stirring confusion among investors regarding monetary policy. This uncertainty, coupled with soaring bond yields and geopolitical stressors like the Israel-Palestine war, led major indices to close in the red.
Mixed Q3 earnings added to the chaos, with Netflix making gains, Tesla taking a dive, and regional banks disclosing higher expenses. Amid this, the market’s narrowness was highlighted — a stark contrast to previous bull markets, with gains heavily concentrated in the largest stocks.
Smaller companies, especially those indexed in the Russell Microcap, continued to underperform, missing the bull market’s benefits. This disparity underscores a growing concern in market health, calling for a more cautious approach in anticipation of potential economic shifts.
The strength of the US Dollar continues to loom over foreign exchange markets, inducing bearish trends in pairs like EUR/USD, while Bitcoin attempts a comeback, diverging from Ethereum’s stagnant momentum. Amidst these chaotic market movements, the spotlight also shines on precious metals, with gold poised as a viable hedge, and commodities, as oil prices aim for new summits.
Parallel to the corporate earnings saga, significant economic indicators are on the horizon. The U.S. Census Bureau’s forthcoming national retail sales data for September will serve as a critical measure of consumer spending resilience.
The housing sector is also under scrutiny with imminent updates on September housing starts, existing home sales, and the NAHB’s Housing Market Index for October.
These revelations will not only paint a clearer picture of the economic recovery but also potentially sway market sentiments. Investors are advised to stay vigilant, balancing their portfolios to navigate the unpredictability, possibly favoring bonds as stocks face downward pressure.
Daily Trading Signals (Highlights)
Bitcoin (BTCUSD) – Following up from this, we have seen Bitcoin rally more than 20% from the swing lows! 💰🔥💪🏻
It has just tested the $30k level, will it be able to break new highs this time?
NZDUSD – Prices are nearing the 2nd TP, which is near the support level, as well as the trend channel bottom. 💪🏻
S&P 500 (US500) – Following up on this, prices are heading downwards as predicted.
Prices are now below all 3 moving averages, and this could lead into a larger correction,
Overall news is more on the bearish side, with inflation creeping up, mixed corporate earnings, and escalating global conflicts.
Gold (XAUUSD) – Looking at the weekly chart of Gold, there is a good chance that it is going to continue its uptrend and break to new highs.
Gold tends to perform well in terms of market uncertainty and in times of global conflict and wars.
Spencer is an avid globetrotter who achieved financial freedom in his 20s, while trading & teaching across 70+ countries. As a former professional trader in private equity and proprietary funds, he has over 15 years of market experience, and has been featured on more than 20 occasions in the media.
War, regardless of where or why, is disheartening. Ideally, a world without conflicts is what many desire.
However, reality demands us to be pragmatic, especially investors who need to perceive events as they unfold rather than how we wish them to be.
This article delves into the implications of the recent Israel-Hamas conflict and its potential consequences on financial markets.
How Have Various Markets Reacted in the Past?
The Israel-Hamas conflicts have occurred several times, particularly the notable escalations in 2008-09, 2012, and 2014.
The financial markets, while inherently sensitive to geopolitical events, have a multifaceted reaction based on a variety of factors, not just the conflict itself.
Let’s break down the general trends during these periods across various markets:
US Stocks (S&P 500)
2008-09: This was the period of the global financial crisis, so it’s difficult to isolate the impact of the Israel-Hamas conflict on US stocks. The S&P 500 was already in decline due to the financial meltdown.
2012: In November, the S&P 500 saw a short-lived decline which coincided with the beginning of the conflict. However, by the end of the month, it had mostly recovered.
2014: The conflict’s start in July saw a modest dip in the S&P 500, but it resumed its upward trend by August.
Bonds & Long-Term Treasury Notes
Geopolitical tensions generally lead to a “flight to safety” where investors buy up government bonds.
During the mentioned conflicts, yields (which move inversely to bond prices) on the long-term Treasury note tended to dip slightly, indicating increased demand for US government debt.
Gold
Gold is another “safe-haven” asset. During the Israel-Hamas escalations, the price of gold generally saw a rise.
For instance, in 2014, gold prices spiked in July but began declining again in August.
Commodities
The broader commodities market didn’t show a clear trend directly attributable to the conflicts, but individual commodities like oil did.
Oil
The Middle East is a significant oil-producing region. While Israel and Gaza aren’t major oil producers, the potential for broader regional instability affects oil prices.
In 2012, for example, oil prices rose by about 10% in the early days of the conflict but started declining as ceasefire talks began.
USD (US Dollar)
The US dollar generally serves as a safe-haven currency during geopolitical tensions.
It witnessed a slight strengthening during the periods of the conflicts, particularly against emerging market currencies.
Cryptocurrencies
Cryptocurrencies like Bitcoin were in their nascent stages during the earlier conflicts and hence didn’t serve as significant indicators.
By the 2014 conflict, Bitcoin’s price remained relatively stable, suggesting it wasn’t significantly impacted by the conflict.
Immediate Repercussions on the Financial Markets
Any disturbance in the Middle East directly affects the oil market due to the region’s control over approximately 30% of the global oil supply.
The recent conflict between Israel and Hamas is no exception, causing oil prices to surge by $3 a barrel at the start off the war.
This uptick is crucial as oil plays a significant role in inflation, which in turn influences the Federal Reserve’s decisions on interest rates.
Potential Setback for the Saudi-Israel-US Agreement?
The ongoing conflict brings into question the potential Saudi-Israel-US trilateral deal which entails:
Saudi Arabia’s formal recognition of Israel
The US offering weapon sales, security assurances, and support in developing a domestic nuclear program to Saudi Arabia
Saudi Arabia’s commitment to amplify oil supply by 2024
However, the recent aggressions make it challenging for Saudi Arabia to formally recognize Israel without facing domestic backlash.
Given the backdrop, the unfolding events hint at a larger geopolitical game, especially considering Iran’s support for Hamas.
Mid-Term Implications
Historically, conflicts in the Middle East have had mixed effects on oil prices.
For instance, the 2006 Lebanon War didn’t leave a lasting impact on oil prices once other macroeconomic factors set in.
Currently, two significant factors play a role: the decreasing demand for oil due to a global economic downturn and the decision of OPEC+ regarding oil supply in 2024.
However, the unpredictability of war makes it essential for investors to be cautious about potential escalations.
Potential for a Larger Scale Conflict
While we hope for peaceful resolutions, there’s always the risk of conflicts escalating.
A potential sequence could be:
Israel intensifying its military response with a substantial invasion of the Gaza Strip
Hezbollah’s involvement from Lebanon
If Hezbollah faces potential defeat, Iran might intervene either directly or indirectly
Given the strategic position of the Strait of Hormuz, any larger-scale conflict involving Iran could disrupt global oil supplies, leading to drastic implications for oil prices, inflation, and consequently, interest rates.
Broader Geopolitical Context
Understanding the Israel-Hamas conflict requires us to view it against the backdrop of the larger geopolitical landscape. This includes:
Changes in Global Energy Dynamics: The aftermath of the Ukraine conflict altered global energy routes, with Europe becoming more reliant on the US and Africa, while Russia shifted its focus to China and India.
Shifts in Global Power Balance: The recent years have seen a noticeable shift in the balance of power, with challenges to US dominance becoming more pronounced, signalling a transition towards a more multi-polar world order.
Historical Context of the Israel-Hamas Conflict
Origins
Late 19th to Early 20th Century: Zionism, a movement supporting the re-establishment of a Jewish homeland in what was then Palestine, grew in prominence. Simultaneously, Arab nationalism also emerged in response to Ottoman and Western colonial rule.
1917: The Balfour Declaration by the British government supported the establishment of a “national home for the Jewish people” in Palestine. Palestine at this time was part of the Ottoman Empire and post-World War I came under British control.
1947: The UN approved a partition plan to divide Palestine into separate Jewish and Arab states, with Jerusalem under international administration. This was accepted by the Jewish leadership but rejected by the Arab leaders.
1948: The State of Israel was proclaimed. Neighboring Arab states intervened, leading to the Arab-Israeli war.
Hamas’ Emergence
1987: Amidst the First Intifada (Palestinian uprising), Hamas (Islamic Resistance Movement) was founded. It emerged as a rival to the secular nationalist Fatah party, which dominated the Palestine Liberation Organization (PLO).
2006: Hamas won the Palestinian legislative elections, leading to tensions with Fatah. This culminated in Hamas taking over the Gaza Strip in 2007, after which the Palestinian territories became divided with Fatah controlling the West Bank and Hamas controlling Gaza.
2008-09, 2012, 2014: Major military conflicts erupted between Israel and Hamas, each resulting in significant casualties. The conflicts usually initiated with rocket attacks from Gaza into Israel and were followed by Israeli air strikes, with escalations leading to ground invasions.
Underlying Issues
Several key issues perpetuate the conflict:
Territory: The boundaries and status of Israel and a future Palestinian state remain contentious.
Jerusalem: Both Israelis and Palestinians consider Jerusalem their capital.
Refugees: The Palestinian demand for the right of return of refugees who fled or were expelled during the Arab-Israeli war.
Security: Concerns over recognition, attacks, and the safety of citizens persist on both sides.
The Israel-Hamas conflict is part of the broader Israeli-Palestinian conflict and remains one of the most enduring and complex in modern history.
Concluding Thoughts
While the ongoing events between Israel and Hamas have clear and immediate financial implications, it’s essential to understand their place in the broader geopolitical context.
The changes in energy dynamics and the evolving global power structures play a significant role in shaping these events.
Observing these shifts provides a comprehensive understanding and helps in making informed investment decisions.
As investors, what can we do to protect our portfolio against unexpected events like this?
Spencer is an avid globetrotter who achieved financial freedom in his 20s, while trading & teaching across 70+ countries. As a former professional trader in private equity and proprietary funds, he has over 15 years of market experience, and has been featured on more than 20 occasions in the media.
https://synapsetrading.com/wp-content/uploads/2019/10/logo.jpg00Spencer Lihttps://synapsetrading.com/wp-content/uploads/2019/10/logo.jpgSpencer Li2023-10-21 02:00:292023-10-21 02:39:31How Will the Israel-Palestine War in Gaza Affect Global Markets?
