The Federal Reserve released the latest Beige Book today. It contains a compilation of anecdotal commentary collected before October 9 (emphasis added):
Economic activity continued to increase across all Districts, with the pace of growth characterized as slight to modest in most Districts. Changes in activity varied greatly by sector. Manufacturing activity generally increased at a moderate pace. Residential housing markets continued to experience steady demand for new and existing homes, with activity constrained by low inventories. Banking contacts also cited increased demand for mortgages as the key driver of overall loan demand. Conversely, commercial real estate conditions continued to deteriorate in many Districts, with the exception being warehouse and industrial space where construction and leasing activity remained steady. Consumer spending growth remained positive, but some Districts reported a leveling off of retail sales and a slight uptick in tourism activity. Demand for autos remained steady, but low inventories have constrained sales to varying degrees. Reports on agriculture conditions were mixed, as some Districts are experiencing drought conditions. Districts characterized the outlooks of contacts as generally optimistic or positive, but with a considerable degree of uncertainty. Restaurateurs in many Districts expressed concern that cooler weather would slow sales, as they have relied on outdoor dining. Banking contacts in many Districts expressed concern that delinquency rates may rise in coming months, citing various reasons; however, delinquency rates have remained stable.
The observations were more positive than I thought they’d be. There was no mention of any significant slowing. I was especially heartened by the comments on consumer spending since it’s responsible for 70% of economic growth.
Fed Governor Brainard joined the chorus of Fed governors expressing support for additional stimulus:
Continued targeted support to replace lost incomes will be an important factor in determining the strength of the recovery. Apart from the course of the virus itself, the most significant downside risk to my outlook would be the failure of additional fiscal support to materialize. Too little support would lead to a slower and weaker recovery. Premature withdrawal of fiscal support would risk allowing recessionary dynamics to become entrenched, holding back employment and spending, increasing scarring from extended unemployment spells, leading more businesses to shutter, and ultimately harming productive capacity.
No Fed governor has described the recovery as robust. All appear to be very concerned that the recovery will be a grinding one.
Two papers for your longer-reading times:
- Modern Monetary theory from Citibank, which provides a good explanation of this new economic theory.
- Here’s a shorter one from Llewelyn Consulting.
- Public Investment for the Recovery from the IMF
Finally — an up day. The best part is that small-caps led the market higher; all the smaller-cap indexes were up over 1%. Large-caps shared in the gains as well. Also note: treasuries were lower (more on that below).And energy continues in its manic-depressive ways. This time, it was up 4%. Other gains were less spectacular: financials gained nearly 2% and healthcare was up 1.5%. Real estate was near unchanged. The news for this sector has been cautious of late. Technology lost 0.5%.
… the TLT. Furthermore, the TLT is now below the 200-day EMA, which separates bull and bear markets.
One of my concerns for the bullish argument was that treasuries were still pegged at high levels. These moves lower could signal that bond investors are taking gains, which they will hopefully put back into stocks.
The SPY rallied all day, crossing above resistance right after lunch and closing near a 1-day high. The markets desperately needed a strong rally and today the SPY delivered.
This morning, the SPY printed a reverse head and shoulders pattern The fact that it took a few hours to develop is important; longer patterns have more weight. Also of import is that during the last three trading sessions, prices have coalesced in the 342.5-345.5 area.
The IWM may have printed a double-bottom. I say, “may” because the first leg down was at the end of a trading session which was artificially ended by the closing bell. If the market had stayed open, prices may have continued lower. QQQ 5-day
Like the SPY, the QQQ has spent several days clustering between two price levels. In addition, there’s a descending bottom this morning followed by a rally higher.
The pieces are lining up for a bottoming. Two indexes are clustering in a tight price range and all three 5-day charts have clear bottoming formations. Let’s hope nothing crazy happens overnight so the markets can rally tomorrow.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.