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Nasdaq Futures on Shaky Ground as Earnings Prevail

/ October 26, 2023

On Thursday, Nasdaq futures took a downward turn, indicating the possibility of entering a correction phase. This decline was fueled by disappointing earnings reports from major Big Tech companies and the simultaneous rise in bond yields, which continued to exert pressure on the stock market. Contracts linked to the Nasdaq 100 (^NDX) experienced a drop of nearly 0.9%, underscoring the ongoing challenges faced by tech stocks. This decline came after these stocks recorded their weakest single-day performance in eight months just the previous day. Similarly, S&P 500 (^GSPC) futures saw a 0.5% decrease, reflecting the benchmark’s lowest closing point since May. Dow Jones Industrial Average (^DJI) futures slipped by 0.2%, mirroring the minor losses observed in the previous trading session. The primary driver behind these market movements remains corporate earnings. Investors reacted negatively to third-quarter reports from large-cap companies that failed to meet expectations. There is also growing apprehension about elevated valuations in the context of rising Treasury yields, as the 10-year yield benchmark (^TNX) approached 5% on Thursday. One notable example was Meta (META), which initially reported earnings that exceeded revenue and profit projections. However, the company’s shares reversed course after its parent company, Facebook, cautioned that geopolitical instability could impact its advertising business. On Thursday, the flow of earnings reports continued, with Amazon (AMZN), Intel (INTC), Ford (F), and Chipotle (CMG) taking the spotlight. Overall, the results from Big Tech firms have contributed to the prevailing uncertainty in the stock market. They have failed to provide a clear narrative for investors, unlike past earnings seasons where they often played a prominent role in driving market rallies. BlackRock’s Global CIO, Rick Rieder, emphasized the dispersion in earnings outcomes, particularly highlighting the performance of Microsoft and Alphabet. Rieder commented, “We are seeing conflicting signals in the market. This is why the markets are so volatile and unpredictable.” The release of the third-quarter GDP reading on Thursday may offer some guidance, as it is expected to represent the peak of economic growth in 2023, based on a series of data points indicating economic resilience. John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

Market News

Preparing for the January Surge: A Comeback Plan for Stock Market Underperformers in 2023

/ October 25, 2023

Before hastily selling stocks that have shown poor performance over the year, consider this: they often experience a significant resurgence in January. This occurrence is a result of two distinct sources of artificial selling pressure unrelated to a company’s fundamentals or earnings potential. The impact of these pressures diminishes by December 31st, setting the stage for a substantial rebound in these stocks in January. One source of this selling pressure is known as “end-of-year window dressing.” Portfolio managers sell their underperforming stocks to avoid the embarrassment of listing them in their year-end reports. The other source is “tax-loss selling,” where investors shed stocks with losses to offset some of the capital gains taxes they anticipate paying in the following year. The chart below, based on data dating back to 1927 (courtesy of Dartmouth College’s Ken French), clearly illustrates this January bounce-back trend. It tracks the performance of a hypothetical portfolio that monthly invests in the 10% of stocks with the worst trailing-year returns. Notably, the most robust average returns are witnessed in January, while the weakest returns occur at the end of the year. John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

Market News

5% Treasury Yields Signal a Shift: How Stock Market Investors Can Stay Ahead

/ October 23, 2023

The recent surge in U.S. government bond yields, pushing the 10-year Treasury rate to nearly 5%, a level not witnessed in 16 years, has created a challenging environment for investors in the stock market. The 10-year Treasury yield, represented by BX:TMUBMUSD10Y, reached its highest point since 2007, nearly touching the 5% mark, before slightly receding on Friday. Simultaneously, the 30-year Treasury yield, symbolized by BX:TMUBMUSD30Y, also saw its highest closing level since 2007 on Thursday, followed by a minor pullback. These developments have introduced elevated volatility in the bond market, with the ICE BofA MOVE Index, often referred to as the bond market’s “fear gauge,” surging to 142 in early October, marking its highest level since May. As of Friday, it was hovering around 135.5, as per FactSet data. Nancy Davis, who manages the Quadratic Interest Rate Volatility & Inflation Hedge ETF IVOL, voiced concerns about the perceived safety of bonds, emphasizing that bonds are not without risk, noting that the 30-year Treasury experienced more significant losses than the Nasdaq in 2022. Jay Hatfield, Chief Executive at Infrastructure Capital Management, pointed out that the rising Treasury yields have played a substantial role in the recent weakness of the stock market. As a result of these developments, U.S. equities concluded the week with losses, including a 1.6% decline in the Dow Jones Industrial Average (DJIA), a 2.4% drop in the S&P 500 (SPX), and a 3.2% decrease in the Nasdaq Composite (COMP) over the past week, based on data from Dow Jones. Hatfield explained that equities are essentially long-duration assets, making them sensitive to interest rate fluctuations. With rising interest rates, the future earnings of stocks are discounted at higher rates. Moreover, the ascending Treasury yields are diminishing the attractiveness of riskier investments. Yields on fixed-income instruments now exceed the earnings yield of S&P 500 index companies. According to Jose Torres, a senior economist at Interactive Brokers, it no longer makes sense to hold equities at elevated prices when the 10-year Treasury yield is approaching 5%. Hatfield’s models indicate that a theoretical 40-basis-point increase in the 10-year Treasury yield can lower the S&P 500 multiple by one point. Over the past three months, the 10-year Treasury yield has risen by 108 basis points, suggesting a potential drop of almost three points in the S&P 500 multiple. As of Thursday, the S&P 500’s price-to-earnings ratio stood at 19.34, as per Dow Jones market data. Sentiment wasn’t improved when Federal Reserve Chair Jerome Powell stated that bond market volatility should be allowed to “play out.” However, he acknowledged that the rise in Treasury yields is tightening financial conditions and could potentially act as a substitute for further Fed interest rate hikes. From a technical standpoint, Torres anticipates that the 10-year Treasury yield might test 5.29% in the upcoming months. If it surpasses this level, we may enter uncharted territory regarding how high it can go, with a possible peak of 6% during this cycle. Hatfield holds a more optimistic view, expecting the 10-year Treasury yield to peak at approximately 5%. He noted that in the following week, if interest rates stabilize, the stock market should shift its focus to earnings, particularly from tech giants like Microsoft Corp. (MSFT), Alphabet Inc. (GOOGL), and Visa Inc. (V), which are set to report their third-quarter results. Nonetheless, Hatfield recommended exercising caution, given ongoing geopolitical tensions in the Middle East and the expectation that positive inflation data won’t materialize until November. He suggested that preferred shares, offering fixed dividends to shareholders, could be a prudent choice. Additionally, investors may consider adding tech stocks, given the forthcoming earnings reports. Given the elevated bond yields, active management is preferred over passive investing, as noted by Torres. Torres predicted that stock market performance in the next five to ten years will likely be more subdued with high interest rates, making it an environment for stock pickers to select the right companies and sectors poised for success. Looking ahead, important data releases to watch for include the flash October manufacturing purchasing managers indexes on Tuesday, and the September personal consumption expenditure (PCE) price index, expected on Friday in the coming week. Investors will also be monitoring September new home sales data on Wednesday, along with information on U.S. third-quarter GDP, weekly initial jobless benefit claims, and September durable-goods orders, all due on Thursday. John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

Market News

S&P 500 Set for a Shift? Volatility Indicator Insights

/ October 22, 2023

The CBOE Volatility Index, or VIX, is widely recognized as a fear indicator for the market and is currently emitting an unusual signal that hints at a possible downturn in stocks. This situation reflects heightened concerns about the stock market’s trajectory, influenced by worries about a looming recession, turbulent bond markets, and escalating geopolitical risks. Conversely, contrarian investors may view this as an indicator that the market has bottomed out, potentially presenting a buying opportunity. In September, the volatility index was at its lowest point since the pandemic, indicating a robust bull market and diminished recession concerns. However, recent developments, such as geopolitical tensions and volatility in the bond market, have introduced fresh uncertainty into the market. Apollo’s chief economist, Torsten Sløk, noted in a recent report that credit volatility has risen, remaining above pre-pandemic levels. John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

Market News

60:40 Portfolio – Your Ultimate Market Insurance for Every Storm ?️?

/ October 21, 2023

This year, the renowned 60:40 portfolio is outperforming last year’s performance, living up to expectations. This classic allocation, commonly favored by retirees and those nearing retirement, divides investments with 60% in stocks and 40% in bonds. While it faced a challenging year in 2022, experiencing one of its worst calendar-year losses in the history of U.S. markets, it has made a strong recovery in the current year. The revival of this portfolio is not the result of intricate market-timing predictions but rather aligns with the concept of “regression to the mean,” often referred to as the “most powerful force in financial physics.” This concept suggests that following a period of extreme returns, the portfolio’s subsequent performance tends to gravitate back toward its long-term average. Up until October 18, a portfolio structured with 60% invested in the Vanguard Total Stock Market Index ETF (VTI) and 40% in the Vanguard Long-Term Treasury Index Fund (VGLT) has demonstrated a year-to-date gain of 2.9%, which translates to an annualized gain of 3.8%. This starkly contrasts with the 23.5% loss experienced in the previous year. The return to the mean follows historical patterns, where a 60:40 portfolio that is rebalanced annually has an average annualized return of 7.1%. This year’s annualized return of 3.8% aligns more closely with this long-term average when compared to the significant loss of the previous year. Illustrated in the accompanying chart is the 60:40 portfolio’s trailing 20-year return, which closely mirrors its long-term average. This evidence counters concerns from critics who argue that the portfolio is emerging from a period of unusually high returns, thereby implying expectations of lower future returns. This argument held weight 15 years ago when the trailing-20-year return was at a record high, but not today. Reflecting on the past three years, when interest rates were at historic lows, it’s clear that many would have shied away from bonds and possibly reduced their equity exposure due to the widespread belief that rising interest rates negatively affect stocks. However, despite the rise in interest rates, the stock market has delivered a robust annualized three-year gain of 7.9%. This equity return surpasses the performance of alternative asset classes that investors may have considered three years ago, such as gold bullion and hedge funds. In essence, the 60:40 portfolio would have kept investors invested in a superior-performing asset class. While there are no guarantees in financial markets, it is a strong likelihood that the 60:40 portfolio will continue to perform well if interest rates significantly decline in the future. This is because a decrease in interest rates is traditionally seen as favorable for stocks, although historical evidence suggests that it does not always play out as expected. In the event of an unexpected downturn in the stock market, a 60:40 portfolio can help mitigate losses and potentially produce gains. The 60:40 portfolio serves as a reliable insurance policy that frequently cushions the impact of an equity bear market. Three years ago, when interest rates were exceptionally low, this insurance component was minimal. However, with interest rates currently at a 16-year high, the bond portion of the 60:40 portfolio has significant potential to offset equity losses. Typically, acquiring such insurance comes at a considerable cost, but over the past three years, the 60:40 portfolio not only provided protection but also generated returns. It’s as though investors have been paid to maintain this valuable insurance policy. Disregarding the 60:40 portfolio at this stage would mean relinquishing this valuable insurance policy, which, in most scenarios, has proven to be a prudent choice. John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

Market News

S&P 500 Futures Struggle Amidst Soaring Bond Yields and Geopolitical Unrest

/ October 20, 2023

On Friday, U.S. stock index futures suggested a challenging day ahead for Wall Street, as investors grappled with the impact of rising bond yields and ongoing geopolitical tensions. Additionally, investors were carefully considering remarks made on Thursday by Federal Reserve Chairman Jerome Powell. Here’s the current market situation: In the previous trading session on Thursday: Key market drivers: The major stock indices were poised for weekly losses as the 10-year Treasury yield approached the 5% threshold on Thursday. The 10-year Treasury yield (BX:TMUBMUSD10Y) had fallen by 4 basis points to 4.944% on Friday, although it had surged by 31 basis points throughout the week, starting at 4.616% on Monday. Federal Reserve Chairman Jerome Powell, during his remarks in New York on Thursday, offered a cautious economic outlook but kept the door open for further interest rate increases. He also highlighted the potential role of higher Treasury yields in the Fed’s efforts to combat inflation by tightening financial conditions. The recent increase in bond yields can be attributed to strong retail sales data, following a robust nonfarm payroll report and higher-than-expected inflation figures earlier in the month. These factors have fueled expectations of a more hawkish stance from the Fed. The last scheduled speaker before the blackout period leading up to the November 1 rate decision is Cleveland Fed President Loretta Mester. Regarding corporate earnings, American Express (AXP, -1.26%) is set to report before the market opens. The upcoming week will see major tech companies such as Alphabet (GOOGL, -0.15%), Microsoft (MSFT, +0.37%), and Amazon.com (AMZN, +0.21%) releasing their earnings. Investor sentiment has also been influenced by ongoing geopolitical tensions, particularly the conflict between Israel and Hamas, which has led to concerns about the potential for a ground invasion by the Israeli military. This situation has resulted in heavy strikes in Gaza and evacuations in affected areas. In the commodities market, West Texas Intermediate crude (CL.1, 0.95%) has risen by 1% to $89.39 per barrel, while gold (GC00, 0.28%) has climbed by $12.80 to $1,993.30 per ounce. Notable companies in focus: John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

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