The weekly market reports include a stock market forecast and an analysis of capital markets. Access to the full report requires a Premium Articles or All-in-One subscription.
Included in this weekly market report:
- The Year of the Dragon. Is China collapsing?
- Markets are overbought for longer.
- Is macroeconomic analysis useful?
- What is the story with small caps?
- What is happening with commodities?
Weekly Summary (February 5–February 9, 2024)
- The tech-driven rally in U.S. stocks continued.
- Bond yields rose on the back of uncertainty about rare cuts.
- Crude oil gained due to adverse Middle East developments.
- The US dollar was up, but off the highs of the week.
The spot price of crude oil jumped 5% this week on rumors of a failed ceasefire agreement in the Middle East. The DBC ETF gained 2.1% due to its high correlation with crude oil. Gold (GLD) fell 0.5% on the back of a resilient US dollar, and the UUP ETF gained 0.2%. See the Capital Markets section for more details and commodity charts.
Large-cap stocks (SPY) and tech stocks (QQQ) were up 1.4% and 1.9%, respectively, to new all-time highs and are in overbought territory due to strong momentum. Small caps (IWM) gained 2.5% but are still down year-to-date by 0.7%. See the Capital Markets section for more details and statistics.
High beta large caps (SPHB) gained 1.7%, but low-volatility large caps (SPLV) fell 0.8% due to investor preference for higher-risk securities. Note that the Dow Jones Industrial Average ended the week flat, while the magnificent 7 stocks rose 3% on an equal-weight basis, pulling broad indexes higher.
Long-duration bonds (TLT) dropped 2.3% after a failed attempt for a rally on Tuesday, February 6, 2024. Since 2022, the TLT ETF has been down 32.7%. In the same period, large-caps (SPY) have gained 8.9%. Gold (GLD) has outperformed large-cap stocks in the same period with a gain of 9.7%.
The Year of the Dragon. Is China collapsing?
We wish a Happy Year of the Dragon to our Chinese friends around the world!
The dragon is the fifth zodiac animal in a 12-year cycle. The last seven occurrences were in 1940, 1952, 1964, 1976, 1988, 2000, and 2012. Below are some key events that occurred in those years.
1940: Germany invades most of Europe. The Battle of Britain starts. Italy invades Egypt and Greece.
1952: Princess Elizabeth becomes the Queen of England. The US tests the hydrogen bomb. Vladimir Putin is born.
1964: Dr. Martin Luther King, Jr., receives the Nobel Peace Prize. A 9.2-magnitude earthquake strikes Alaska. Race riots start in Harlem. A military coup is staged in Brazil.
1976: Apple Inc. is born. A military coup occurs in Argentina. NASA announces the space shuttle.
1988: The Soviets are defeated in Afghanistan. A Pan Am flight explodes over Lockerbie. The Iran-Contra affair shakes US politics.
2000: A bear stock market starts in the US. The euro crashes against the dollar. A huge solar flare occurs. George Bush defeats Al Gore in the presidential elections.
2012: Hurricane Sandy causes widespread damage and deaths. The US lands the Curiosity observatory on Mars.
Is China collapsing? There is speculation about the coming collapse of the Chinese economy in the financial media, as well as fears of another deflation. Here is my response to one of the posts (edited).
China was mostly responsible for the 2008 crisis due to the liquidity from reinvestment in the US economy, which pushed rates artificially low and caused the real estate crisis. If liquidity dries up, the result will probably be inflation, not deflation. This is something that the USA may welcome to inflate the public debt. These are debatable, of course, because there are hidden variables and higher-order effects. For example, in both the USA and China, risk assets will lose value, but higher rates will support pro-labor policies and signal the end of corporate capitalism and its influence on decision-making. Lower asset values may not necessarily cause economic collapse, as long as real GDP stays in positive territory due to government spending. The risk is that the end of corporate capitalism may also bring about the end of capitalism in general because there will be nationalization of key industries in the West.
Stock Market Forecast
A proprietary model generates the forecast. The model’s accuracy has been close to 100%. The model generates well-defined, long entry and exit signals for the SPY ETF. The model does not attempt to forecast exact tops and bottoms. The objective is to minimize losses due to large corrections and maximize gains in uptrends.
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Specific disclaimer: This report includes charts that may reference price levels determined by technical and/or quantitative analysis. No charts will be updated if market conditions change the price levels or any analysis based on them. All charts in this report are for informational purposes only. See the disclaimer for more information.
Disclaimer: No part of the analysis in this blog constitutes a trade recommendation. The past performance of any trading system or methodology is not necessarily indicative of future results. Read the full disclaimer here.
Charting and backtesting program: Amibroker. Data provider: Norgate Data
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