Welcome to the latest edition of “Weekend Reading For Traders”. We kick things off this week with an article that covers Friday’s jobs report and why continued strength in the labor market suggests that the Fed is no closer to altering its plan for additional aggressive rate hikes. From there, we have two articles that examine recent extremes in market internals, while noting that such extremes mean that investors might want become increasingly optimistic around the opportunities that this bear market is creating.
We wrap things up with two articles about travel… one which suggests that travelers might want to book their holiday flights sooner rather than later, and another which shares some pointers around getting the most out of a vacation… for those who take advantage of the holiday season to actually “get away”!
And with that, we hope you enjoy this latest installment of Weekend Reading For Traders.
Fed On Track For Another Large Interest-Rate Hike After Jobs Report
(Nick Timiraos | The Wall Street Journal)
A dismal end to a terrible quarter the previous week left the indices deep into oversold territory and the S&P 500 just a couple of points under its 200-week moving average. Market players took that opportunity to create what (according to many breathless accounts) was the largest two-day bounce since the dinosaurs ruled the earth. Of course, as that bounce took shape, so to did the narrative that, once again, investors were positioning for a possible Fed pivot… despite continued assurances from various Fed Presidents that they seriously doubted that they would alter their plans for additional rate hikes, regardless of what any near-term economic date might suggest. If true, nascent buyers didn’t seem to have much conviction, as the upside stalled out mid-week ahead of Friday’s jobs report, which not only showed continued strength in the labor market, but also suggested that recent rate hikes have yet to impact the job market, which the Fed worries is helping to keep inflation sticky. The reaction was predictably negative, with stocks spending Friday’s session trending steadily lower, and (as of the time of this writing) within spitting distance of the previous week’s closing lows. This bear market action will ultimately result in tremendous opportunities, but this market requires both patience as we wait for better action and continued skepticism of oversold bounces amid a broader downtrend.
Why Fear Is Good
(Charlie Bilello | Compound Advisors)
Seasoned investors understand that bear markets are not only unavoidable, but are actually a necessary part of a healthy market. The reality is that downdrafts are a boon to opportunistic traders with the right mindset. New opportunities become increasingly sparse when the market runs straight up. The truth is that bear markets create conditions where traders can subsequently make significant money in the market. Accordingly, in this article, Bilello argues that when fear is at extremes, investors should start feeling the most optimistic. Using the AAII sentiment poll, which has been measuring sentiment since 1987, he notes that the spread between bears and bulls sits at 43%, which is in the bottom 3% of sentiment readings and has historically resulted in above-average “outcomes over the subsequent 3-month through 5-year periods”. Of course, similar readings have come ahead of lower lows in the past, but the key is that investors should pay close attention when such extreme levels and be prepared to act when the pricing action (inevitably) improves… especially given the seasonal tendencies prevalent late in mid-term years.
Was That The Bottom?
(Michael Batnick | The Irrelevant Investor)
Investors are universally aware of the need to be “fearful when others are greedy and greedy when others are fearful”, but as is the case with so many market aphorisms, it’s much easier said than done, especially when oversold bounces routinely fail and the indices continue to hit fresh lows amid a constant stream of negative headlines. However, it’s important for investors to pay attention when market internals reach extremes. In this article, Batnick points out a couple of interesting things: first, as of the final week of the third quarter, more than 85% of stocks in the S&P 500 were below their 200-day moving average, which has typically presaged (often quite) positive returns one year out. Second, he notes that bounces of greater than 5% in the midst of a >20% decline (which happened early this past week) for the S&P 500 have also occurred ahead of strong returns over the next 1, 3, 5, and 10 years. While Batnick certainly isn’t “calling a bottom”, the point remains that investors should be ready to take advantage of the opportunities this bear market is creating.
Why You Should Book Your Holiday Flights Now
(Allison Pohle | The Wall Street Journal)
It’s no mystery that airfare rates have been affected by inflation, and after several mishaps earlier this year, pared-back flight service and higher input costs point to even higher prices in the coming weeks. Accordingly, Pohle suggests that anyone expecting to travel for the holidays should do themselves the favor of booking their flights sooner rather than later. Additionally, Pohle recommends that travelers take a closer look at some of the newer budget airlines, become increasingly flexible with their expectations of flight times, and continue to monitor prices after they book. Finally, Pohle notes that recent strength in the dollar might make it worthwhile to consider eschewing Thanksgiving dinner with the fam, and instead using the favorable exchange rates to travel abroad instead!
How To Have A Great Vacation: 6 Secrets Backed By Research
(Eric Barker | Barking Up The Wrong Tree)
Riffing off the last point in the previous article, the surge in the greenback means that traveling abroad might be an attractive option for the holidays. In this article, Barker offers some suggestions around getting the most out of our vacations. Specifically, he recommends booking your trip early (not only to save on airfare, but to give yourself something to look forward to), planning your activities around what you actually enjoy doing (versus what might less of a hassle), structuring your schedule (and make sure to include downtime as well in order to simply take a break… because you are on vacation after all!), making a point to “unplug” (so you can “be” in the moment), saving the most memorable experiences for last, and leaving enough of a buffer afterward so you can ease back into the daily grind.
