U.S. Equity Markets finished Monday lower led by the 1.54% fall in the S&P. The across the board selling, saw the VIX end the day with gain over 8%. Markets finished lower as China’s COVID-19 lockdown developments dominated headlines. Investors are worried of prolonged and tighter lockdowns. Domestically, the Federal Reserve continued to push back on dovish policy statements, as St. Louis Fed President James Bullard reiterated the central bank’s commitment to “higher rate for longer” narrative. Investors are looking forward to multiple economic indicators later this week, including real-time updates on the labour marketThe demise of the 60/40 portfolio may be overly exaggerated. Over the past 11 months, investors everywhere have become inundated with one phrase in particular: “There is nowhere to hide.” This refers to the damage being done to both the stock and bond markets at the same time. Investors and Money Managers have struggled to find profitable footing amongst a plethora of investing strategies. But none have been more scrutinised than the traditional so-called 60/40 allocation. The 60/40 portfolio is designed to provide a moderate balance between risk and return. You see, historically, when money is moving out of stocks, it flows back into bonds. Typically, Money Managers would compare the yields on the S&P 500 Index and 10-year U.S. Treasuries. When the income payout in one is higher than the other, allocators would take advantage of the opportunity to move money into the asset with better return potential. But with interest rates rising so quickly this year, the yield on both income-paying stocks and coupon-paying bonds has shot up. That is because investors have been uncertain of when the Federal Reserve would stop raising interest rates. As a result, the underlying prices of those investments have dropped. This has caused the 60/40 portfolio to drop more than 15% this year. Yet, based on what history tells us, the previous five times this has happened proved to be a great buying opportunity for the S&P 500. With 60% in stocks and 40% in bonds, these portfolios historically have been able to achieve high growth potential from riskier stocks while also shielding excessive loss through more conservative bonds. This popularised investment strategy largely relies on the fact that the stock market and the bond market rarely see dramatic drawdowns at the same time. But this year, investors have endured the unlikely pain that accompanies a down year for both stocks and bonds. Year to date, a 60/40 portfolio invested in the benchmark S&P 500 and the benchmark U.S. 10-year Treasury bond has a real loss of 23.59%. A real loss (or gain) takes into account the effects of inflation on nominal losses (or gains). In other words, higher inflation reduces the value of any gains and furthers the devaluation of any losses. Only 1974 – another year plagued by high inflation – recorded a worse loss. A 60/40 portfolio saw a real loss of 24.11% that year. As I said previously, a 60/40 portfolio of U.S. stocks and bonds has only finished the year down more than 15% just five times in the past 94 years through year-end 2021. It appears this year will be the sixth time in 95 years. Within the S&P 500 Index, all the 11 sectors finished lower. European Markets closed lower. Markets ended largely weaker as China’s protests overshadowed other headlines. Within the region, central bank policy came back into view as European Central Bank President Christine Lagarde said high inflation is dampening spending and production. Interest rates are and will remain the main tool for fighting high inflation. In the U.K., the Confederation of British Industry’s distributive trave survey showed retailers were pessimistic on the growth outlook and have cut back on employment and investments. Investors are now looking ahead to Wednesday’s Consumer Price Index reading for the latest gauge on inflation. In Asia, Equities ended down as civil unrest erupted in multiple Chinese cities over Beijing’s “zero-COVID” policy. Investors fear that further escalation could prompt the Chinese Communist Party to enforce stricter lockdowns and impact global supply-chain operations. Protests come as daily COVID-19 infections again hit new record highs across the nation (on Monday). The People’s Bank of China announced a cut to its base rate by 25-basis points. And Taiwan stocks fell lower after historic loss for the ruling Democratic Party and the resignation of President Tsai Ing-wen as party leader. Elsewhere, Oil fell 0.7% while Gold closed lower by 0.77%.
To mark my 2675th issue of TraderNoble Daily Commentary I am offering a special 2-Year Rate of Euro 2750 for my Platinum Service which includes 1 to 4 updated emails throughout the trading day to demonstrate this value, a monthly subscription over the same period would cost 4440 euro in total This offer represents a 38% discount and is open to both new and existing members. If anyone is interested in this offer can you please email me on bryan@tradernoble.com for details
For anyone following my Platinum Service it made 418 points yesterday and is now ahead by 4456 points for November, after finishing October with a record gain of 9619 points, making 6660 points in September, after closing August with a gain of 2228 points, having made 2660 points in July, following a gain of 3371 points in June. The Service made 3651 points in May, after making 762 points in April, following a gain of 5883 points in March. The Platinum Service made an impressive 5324 points in February, after ending January with a gain of 3878 points, more than making up for December’s 932 points loss. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points. I have a YouTube Channel which contains recent interviews I have given This can be viewed by clicking HERE Please subscribe to this for new interview notification
Equities
The S&P 500 closed 1.54% lower at a price of 3963.
The Dow Jones Industrial Average closed 497 points lower for a 1.45% loss at a price of 33,849.
The NASDAQ 100 closed 1.43% lower at a price of 11,587.
The Stoxx Europe 600 Index closed 0.58% lower.
Yesterday, the MSCI Asia Pacific Index fell 1.1%.
Yesterday, the Nikkei closed 0.42% lower at a price of 28,162.
Currencies
The Bloomberg Dollar Spot Index closed 0.4% higher.
The Euro closed 0.4% lower at $1.0342.
The British Pound closed 1.1% lower at 119.54.
The Japanese Yen rose 0.2% closing at $138.90.
Bonds
Germany’s 10-year yield closed 3 basis points higher at 2.00%.
Britain’s 10-year yield closed 2 basis points higher at 3.13%.
U.S.10 Year Treasury closed 1 basis points lower at 3.67%.
Commodities
West Texas Intermediate crude closed 0.7% lower at $77.40 a barrel.
Gold closed 0.77% lower at $1743.10 an ounce.
This morning on the Economic Front we have U.K. Consumer Credit, Net Lending to Individuals and Money Supply at 9.30 am. This is followed by Euro-Zone Consumer Confidence and Economic Sentiment Indicator at 10.00 am. Next, we have German CPI at 1.00 pm. Finally, we have U.S. Housing Price Index at 2.00 pm and Consumer Confidence at 3.00 pm.
Cash S&P 500
The S&P led yesterday’s move lower in an ugly session where any buying was immediately met with concerted selling which lasted into the close. My S&P plan worked well as the market hit my initial 3987 buy level in the morning before rallying shortly after the Cash Markets opened to my 4005 T/P level. Subsequently, I emailed my Platinum Members to buy the S&P again at 3982 before we had a brief rally to my 3991 T/P level and I am now flat. There is every chance that the S&P can hit my 3860 target level over the coming days. I will be an aggressive buyer at this price with no stop or T/P level for now if triggered. Short-term the S&P has support from 3920/3938 where I will be an aggressive buyer with a wider 3899 ‘’Closing Stop’’. Yet again the 200-Day Moving Average has proved insurmountable to break just like we saw last May and again in August. I will now lower my sell level to 4028/4048 with a 4069 wider ‘’Closing Stop’’.
EUR/USD
The main take away from Monday’s volatile session in currencies was the large Downside Key Day Reversal for the Euro. Having hit a morning high at 1.0496, the Euro fell over 160 points into the New York close. This move higher saw the whole of my sell range executed for a 1.0455 average short position. As I was long the Dollar, I unfortunately covered this short position way too early at 1.0429 and I am still flat. The Euro has support from 1.0180/1.0260 where I will be a strong buyer with a 1.0125 ‘’Closing Stop’’. The Euro has resistance from 1.0420/1.0480 where I will be a small seller with a 1.0555 tight ‘’Closing Stop’’.
March Dollar Index
My Dollar plan worked well with the market trading lower to my 105.40 buy level before rallying to my revised 106.12 T/P level and I am now flat. The Dollar is trading higher at 106.45 as I go to press. We have short-term support from 105.10/105.80 where I will again be a buyer with a 104.45 ‘’Closing Stop’’.
Cash DAX
The DAX continues to meander near recent highs and I am still flat. Given how overbought the DAX is currently, I will now lower my sell level to 14530/14620 with a lower 14705 ‘’Closing Stop’’. Meanwhile I will leave my 13970/14070 buy level unchanged with the same 13895 ‘’Closing Stop’’.
Cash FTSE
The boring action in the FTSE continues. The FTSE continues to ignore the weakness in the other main Indexes, as the market again traded in a narrow range. I am still flat, continuing to be a seller from 7530/7600 with a 7655 tight ‘’Closing Stop’’. I still do not want to be long the FTSE at this time.
Dow Rolling Contract
A 14-Day RSI print on Friday at 71 was enough to see the Dow fall over 500 points yesterday. Not helping the Dow was the weakness of the Black Friday sales. The Dow has short-term support from 33430/33680 where I will be a buyer with a tight 33295 ‘’Closing Stop’’. I will now lower my sell level to 34170/34420 with a lower 34605 ‘’Closing Stop’’.
Cash NASDAQ 100
The NDX got hit hard for the second consecutive trading session. This move lower saw my 11600 second buy level triggered, for a now 11675 average long position. I will leave my 11495 ‘’Closing Stop’’ unchanged while lowering my T/P level to 11760.If any of the above levels are hit, I will be back with a new update for my Platinum Members.
December BUND
I was lucky yesterday as the Bund rallied to my 141.20 T/P level on my latest 140.70 long position and I am now flat. Subsequently, the Bund fell over 100 points. The Bund has further support from 138.90/139.70 where I will again be a strong buyer with a lower 137.95 ‘’Closing Stop’’
Gold Rolling Contract
I am still flat. I do not like the price action. As a result, I will not chase the market higher, leaving my 1710/1722 buy level unchanged with the same 1699 ‘’Closing Stop’’.
Silver Rolling Contract
Silver reversed most of Friday’s late gains, hitting my 20.80 buy level. I will add to this position at 20.20 with the same no stop policy. I will now lower my T/P level to 21.40.
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