After 4 straight days of losses, the market is bouncing strongly today. As we mentioned last week, the market was at an important level and needed a catalyst to move up past the late June highs. Instead, the market headed south and tested the 3700 level on an intraday basis. The S&P remains in the month-long trading range bound by 3700 on the downside and 3900 on the upside. The next big move will come when this trading range is breached. Whether that big move is up or down is the key question! With earnings season upon us, we will likely get a resolution one way or the other in the coming days/weeks. A break to the upside could be strong and take us to the 4100 level. Similarly, a break to the downside could see the 3550 level tested.
The VIX is behaving relatively bullishly. As we have discussed, the VIX is a measure of expected volatility in the market. When it is high and rising, lower prices can be expected. Alternatively, a lower and falling VIX often means a sense of stability in the market. During the bull market, it was common to see the VIX trading in the low teens. During bear markets, it is not uncommon for the VIX to remain above 30 and spike to much higher values. We are watching the VIX to get an indication of how much fear remains in the market.
Our Point
It has been a bit of a strange week. The market got hit with lots of bad news and was able to keep its head above water. On Wednesday, the Consumer Price Index (CPI) came out much hotter than expected indicating that consumer inflation continued its ascent for the prior month. Similarly, on Thursday the Producer Price Index (PPI) disappointed and rose above expectations. Naysayers pointed to the numbers and argued that inflation was far from peaking. Optimists argue that we will see a much lower print next month as the fall in gas prices has accelerated over the last few weeks. Regardless of whether or not inflation has peaked, it remains at highs not seen in 40-50 years and that level will likely continue for some time. In addition to the worrying inflation reports, the markets also had to digest disappointing earnings and forecasts from JP Morgan. With the exception of Citi, early earnings have been disappointing. This morning's retail sales report indicate that the consumer is still spending, and inflation has not swayed them. With our prime day purchases, we certainly did our part! With the hot inflation data and the strong retail report, the Fed is all but certain to raise rates another 75 basis points in a couple of weeks. In fact, there is an increasing likelihood of a full 1% rate increase – the magnitude of which that has not been seen since the early 1980’s. Despite it all, the markets managed late day rallies each day this week to stave off early losses. Today’s impressive rally will not be enough to bring the market up for the week but will make the losses much more palatable. Sometimes it is just very difficult to know why the market is acting like it is! This is one of those times. As mentioned above, the S&P is in a 200-point trading range and movements within this range are mostly noise. A convincing break one way or the other would be the impetus needed to consider making portfolio changes. In the meantime, we continue to hold what we have. We made no changes to our portfolios this week and will remain patient as we muddle into what could be a tumultuous earnings season. I will be traveling next week but will still likely put out a note next Friday. Enjoy your weekend.
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Bills Asset Management (“BAM”), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from BAM. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. BAM is neither a law firm, nor a certified public accounting firm, and no portion of the newsletter content should be construed as legal or accounting advice. A copy of BAM’s current written disclosure Brochure discussing our advisory services and fees is available upon request or at www.billsasset.com.
Please Note: If you are a BAM client, please remember to contact BAM, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. BAM shall continue to rely on the accuracy of information that you have provided.
Please Note: IF you are a BAM client, Please advise us if you have not been receiving account statements (at least quarterly) from the account custodian.
About Bo Bills
Founder and Chief Investment Officer at Bills Asset Management. With over 30 years of experience in managed risk investing, Bo has helped countless clients achieve their financial goals while preserving capital.
Stay Informed
Subscribe to our newsletter for the latest market commentary and insights.