You’ve just got to love Washington DC. Instead of passing an incredibly watered-down Build Back Better program…which would have been seen as a mediocre achievement, they passed an incredibly watered-down Build Back Better program…but with a different name (the Inflation Reduction Act)…and it’s considered a fabulous success! (The funny thing is that there are some people who actually believe this bill is something completely new. Unbelievable!)
Anyway, there is absolutely no question that the action in the stock market has been fabulous over the past two months. However, there is also little question in our minds that the action in the market yesterday was not healthy at all. Don’t get us wrong, this does not mean that the strong two-month rally is about to roll-over in a significant way. It might merely be telling us that the stock market is going to see a pullback/breather over the near-term. That said, the big bounce off the morning lows…and then the big decline mid-afternoon…did not seem to have any rhyme or reason to them. If this had been a one-time event, it would have been overly alarming. However, these kinds of intraday moves are becoming commonplace recently…and it’s something that usually signals the kind of short-term uncertainty which is followed by pullbacks.
However, the bigger warning signal came from the action in BBBY. At one point yesterday, the stock was higher by over 70%. It would have been one thing if this 70% rally (and over 500% rally over the past two weeks) had been fueled by news that they found the answer cure for cancer…or had developed the replacement for the iPhone. However, since they’re a retailer that has been compared to JC Penny, we all know that this rally has had absolutely nothing to do with fundamentals. In other words, it was the kind of speculative action that shows that the market has reached an unhealthy stage…at least over the short-term.
We get the minutes of the Fed’s most recent meeting today…and the Kansas City Fed’s symposium in Jackson Hole comes next week. So far, the stock market has not cared one bit about the rather hawkish comments that Fed officials (and former Fed officials) have made over the past two weeks.
Will that change if Chairman Powell is quite hawkish next week? He was a bit more dovish at his last press conference…so if he moves back in-line with his colleagues, maybe it will finally have a negative impact on the stock market. In fact, it could happen as soon as today…with the above-mentioned “Fed minutes” that come out this afternoon.
One thing is for sure, the bond market is a more concerned about the Fed than the stock market. Since the Fed’s last meeting, the S&P 500 is up almost 10%...but the yield on the 10yr note is UP almost 3%! This rise in the 10yr yield (to almost 2.9%) had not been enough yet to raise any serious concerns, but there is no question that a new divergence has developed between the stock and bond markets. Therefore, if today’s “minutes”…or next week’s confab in Jackson Hole…or anything else…causes this divergence to grow, it should raise the odds that the stock market will finally see some weakness (at least over the near-term).
Then again, EVERY SINGLE dip has been bought by investors and traders alike recently, so maybe the market will continue to rally unabated for many more weeks. However, there is one thing we quite comfortable in predicting: Chasing BBBY up at these levels is a bad idea. (It’s up another 24% this morning.) As you can see from the chart below, this meme stock has had MANY big jumps over the past two years, but all of them ended in tears. This time should be no different.
Matthew J. Maley
Chief Market Strategist
Miller Tabak + Co., LLC
Founder, The Maley Report
275 Grove St. Suite 2-400
Newton, MA 02466
Although the information contained in this report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and may involve risk of loss. Additional information is available upon request or by contacting us at Miller Tabak + Co., LLC, 200 Park Ave. Suite 1700, New York, NY 10166.