I don't like fighting trends in August and the trend so far has been decidedly bearish. The S&P 500 is down almost 5% and the Nasdaq is down over 7%. The equal-weighted indexes have moved more or less in line with their market-weight equivalents (though I still much prefer the equal-weight S&P 500 index/ETFs).
The 10-year Treasury, trading at 4.3% on Monday morning, finished July at 3.96% -- a large move higher and a big reason stocks have done poorly. I have received calls about CTAs -- commodity trading advisors, which basically are systematic hedge funds that rely heavily on futures contracts -- and about how short they are in the 30-year Treasury contract. The market has been trading as though that is the case. My view is that CTAs (generically) tend to put on positions and add to those positions when it is moving their direction (rather than taking profits). They keep leaning on markets in a certain direction until it doesn't work.
Treasuries (and even equities) both have that feel -- that there is systematic or program selling on a routine basis, and it hasn't failed to work. One thing to remember is that once it doesn't work, they are quick to exit (it is a very formulaic approach to trading), which can cause large moves in markets as others who are similarly positioned get stopped out while big CTA unwind flows are occurring. Again, that could help bonds (and I think stocks), but it is August.
Another thing weighing on stocks is the waning interest in generative artificial intelligence, not just in markets but also in Google trends. Fewer people are searching for generative AI and that diminished enthusiasm seems to have bled into the stock market. I'm going to be spending much of this week (assuming no surprises occur) on generative AI. Can this narrative regain momentum?
Finally, and this is the tricky part, the "soft landing" scenario is being questioned again. I'm not sure why consensus completely threw out the idea of a soft landing, but recession chatter is back.
Because I never bought into the "no risk of a hard landing" argument, the current play between soft and less-than-soft landing makes sense to me.
I'm looking at data for inflection points. I'm also finding some stories less than fair. In particular, many bears are citing credit card debt, which has been rising rapidly, while delinquencies also have been increasing. However, credit card debt is below the trend line it was on prior to Coivd.
So, yes, credit card debt has increased sharply in the past year, but it is below the trend we were on. I'm not sure that trend is sustainable, but I can't dismiss it. Similarly, delinquencies, while increasing, are well below average.
I question the resilience of the consumer, but am loathe to jump on the "consumer is tapped out" bandwagon, especially because bank deposits still show some level of excess savings that could be tapped. At some point it will be correct to bet against the American consumer. I'm just not sure now is the time, especially if the job market is as healthy as it purportedly is.
I'm adding to long positions in stocks and bonds here, but little by little as I don't want to fight a trend in August.
