U.S. Portfolio Strategist Tony reiterates his view that we will retest the lows followed by a significant ramp higher. It would be historically unique following a “crash” to not retest the low. The good news is in a bull market crash, that low (even if broken) is followed by a significant leg higher in an ongoing bull market.
August 24th qualified as a crash when the 10-day rate-of-change indicator for the S&P 500 (SPX) hit minus 10.
- Since 1970, there were 14 prior “crashes,” and every single one of them retested the low.
- The three “crashes” outside of recession-driven bear markets were 1987, 1998, and 2011. In two of these occurrences, there was a marginal break of the low.
- According to our partner Jason Goepfert, out of the last 25 years, there have only been 4 positive weeks following the September options expirations.
North American Portfolio Strategist Martin Roberge remarks on how the US Federal Reserve has shifted from being US data to global data dependent. The Fed left its target rate unchanged, citing adverse global economic and financial developments which could eventually restrain economic activity. The Fed decided not to rock the bond market, delivering exactly what the consensus of investors was expecting.
Martin notes key positive yesterday was the marked decline in the US$. The DXY has broken below its 200-day average once again and most EM currencies appreciated relative to the US$ through the day. History shows that most post EM-crisis market recoveries have been fueled by a weaker US$ and stable/strengthening EM currencies.
Martin’s focus this week is on recent data releases in China. He believes a transition from deceleration to stabilization is under way. Martin’s Chart of the Week shows that retail sales (+10.8% YoY), industrial production (6.1% YoY) and housing prices (-2.3% YoY) have sequentially improved this summer, thanks to targeted fiscal stimulus, PBoC rate cuts and a marked pick up in bank lending (+15.7% YoY). Real rates are likely to come down through more rate cuts considering that the PBoC policy rate at 4.6% remains much above the inflation level at 2%. The restraining impact of various typhoons in August and the devastating explosions at Tianjin port should dissipate in Q4, Martin believes China’s economic data could surprise positively going forward.
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