Weakening Wednesday – S&P 2,100 Too Much For The Market


Busted again!  

As I warned yesterday, the S&P is simply too overpriced to take us back over the serious resistance we have at the 2,100 line (2,127.50 is the exact 15% line on our Big Chart that should be the upper limit) and we played it perfectly in our Live Member Chat Room, adding another S&P Ultra-Short (SDS) hedge to our Short-Term Portfolio ahead of the big drop.  

We continue to have bad data reports – even within the "good" reports, when you take a closer look. Like yesterday, we had the obviously bad Chicago PMI at 49.3 (contracting) and Consumer Confidence fell from 94.4 to 92.6 while the Dallas Fed was a horrific -20.8 and even State Street's Investor Confidence dropped to 106.64 from 108.60. The "good" report was Personal Income rising 0.4% but that puts a margin squeeze on corporations and Consumer Spending jumped 1% but it was mostly on rising gas prices and spending 0.6% more than you gained in income is NOT a healthy long-term sign.

Today we'll get Redbook Sales, PMI and ISM Manufacturing, Construction Spending and Job Creation numbers and, this afternoon (2pm), we'll get a look at the Fed's Beige Book. As I noted in our Member Chat Room yesterday, I can't make the optimistic math work that the Atlanta Fed is using in the GDPNow forecast that projects 2.9% Q2 GDP growth.  ISM is one of the components, so we'll see if that's a positive but, on the whole, this economy certainly doesn't have the feel of 3% growth – does it?

Evolution of Atlanta Fed GDPNow real GDP forecast

In a move going the opposite way from the Atlanta Fed, the OECD has LOWERED their Global Growth forecast by 10% (from 3.3% to 3%) and they are specifically calling the US GDP at 1.8% for 2016, which leaves us to really scratch our heads on where the GDPNow forecast is pulling 2.9% from.  In the U.S., “growth hit a soft patch at the turn of the year,” the OECD said. The Federal Reserve’s gradual policy will leave interest rates “supportive throughout the projection, which is broadly appropriate” given weakening inflationary pressures and ongoing weakness in global demand.  

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