The Inflation Fighters: Will They Keep Raising Rates Or Pause?
Also, Interesting Facts That You Have To Read!

August 27, 2023

Weekly Market Outlook

By Donn Goodman and Keith Schneider

Hello Gaugers.  Hope you had a lovely and productive week and maybe you are still on vacation or holiday?  Most kids are back in school, the air is a bit cooler at night and I can feel that fall is around the corner.  We are still in the more volatile, less predictable, weaker seasonal months for the stock market (historically).

What we cover in this Outlook:

  • The Fed stays the course.
  • The stock market weakness during August
  • Sentiment weakness and tactical money manager moves.
  • Inflows to cash are still growing.
  • It’s all about AI and Nvidia
  • Buy the rumor and sell the fact.
  • Seasonal weakness
  • Stocks above their moving averages
  • Some interesting facts (must read section)
  • Big View Summary Bullets

Staying the Course.

This week we heard from several past Fed Governors as well as current ones.  All thought that the Fed had done enough and now it is time to take a “pause”.  However, when Chairman Jerome Powell spoke on Friday morning, his words conveyed the same narrative we have heard consistently over the past two years.  While acknowledging that inflation has cooled, he reiterated that the Fed still needs to continue to do more.  The words he chose to use imply that the Fed is willing to do whatever is necessary to get to their target 2% inflation rate.

Chair Powell says that the US central bank is prepared to raise rates further if need be, and they intend to keep borrowing costs high until inflation gets to their target of 2%. Remember, the Fed has increased rates 11 times since it began this tightening campaign and has pushed the benchmark rate to 5.25%-5.5%.

“Although inflation has moved down from its peak - a welcome development - it remains too high,” he said at the Federal Reserve’s annual conference at Jackson Hole, Wyoming this past week.    He cautioned that the process “still has a long way to go, even with the more favorable recent readings.”

Initially, his remarks about continuing to raise rates jolted a positive stock market open, later in the day, the remarks seemed to have had a more calming effect on the markets, and they finished higher for the day.

Tom Garretson, Sr. Portfolio Strategist with RBC Wealth Management, said “Powell, as has been the case for some time, didn’t offer the markets anything revelatory on Friday - which was likely the goal.  The market reaction looks consistent with the idea that the Fed is likely done raising rates over the near term.”

Long overdue pullback.

August has seen a pullback in the stock market.  We have shown several charts in the past few weeks showing how constructive a 5% or more down move could be for a “new” bull market.   It has been a longer than normal period since we saw even a 5% correction.  See chart below:

Some of the following areas that follow may appear negative.  In fact, they may be reasons not to be negative on the markets as some of the charts and facts point to a possible future turn in the market weakness.   Very often, when sentiment gets negative, or the # of stocks above the 20 & 50 day moving averages falls as much as we have seen in this recent period, along with a build up of cash, these are all signs that we could experience an explosive market move higher in the near-term.  Or not.  I guess it is in the way you decide to interpret it.

Sentiment weakness.

Investor sentiment readings, overly bullish/positive just a few weeks ago, have slipped recently.  The AAII (American Association of Individual Investors) readings slipped these past few weeks, indicating that investors are becoming a bit more cautious than the positive readings during most of the summer.  This can also be a contrarian indicator when these readings get too optimistic (July) or now much more pessimistic.  See chart below:

We have seen similar cautiousness in reviewing the NAAIM (National Association of Active Investment Managers - of which we would count MGAM and our strategies as part).  Many of these stewards of other peoples’ assets have become more cautious recently and moved more defensive to preserve capital.  See chart below:

Cash keeps growing.

The above sentiment and defensiveness of tactical money managers illustrates that there are many investors who still don’t believe we are on solid footing in the markets.  Still others are waiting for the next shoe to drop.  How do we know?  Cash (money market funds, T-bills, etc.) continues to grow in charts indicating the amount of money sitting on the sidelines.

We last reported that these “safe” investments (or non-investments) are well over $5.7 trillion.  When we have enhanced volatility in the markets or a downward move, as we have witnessed during most of August, cash grows.  See chart below showing positive flows into cash during all of August.

Even more interesting is the fact that since the collapse of a few regional banks (SVB), investors are staying away from depositing cash into banks (and Certificates of Deposits) and instead are using money market funds at their brokerage firms or buying T-Bills.

Some of our clients at our RIA, MGAM, have their assets at Interactive Brokers.  Interactive is currently paying investors approximately 4.5% or more on cash that is uninvested in their accounts.  This benefits MGAM investors as frequently we move to cash from stops and profit targets in most of our investment strategies.  Here is a chart showing that investors are hesitant about using banks:

It’s all about AI

The difference between the capitalized weighted S&P 500 index (heavily influenced by the Magic 7 stocks Apple, Amazon, Google, Microsoft, Nvidia, and Tesla) and the equal-weighted S&P 500 is wide.  As you will note, however, the stocks mentioned above all have one magical ingredient that is propelling investor enthusiasm - they all are integrating or incorporating AI (Artificial Intelligence) into their business models in some way.

The difference in performance of the stocks in the S&P 500 that are implementing the use of AI (Artificial Intelligence) and those that do not use or discuss AI is a whopping 62% difference.  See chart below:

Nvidia:  The leader (for now) of the AI revolution:

This past week, Nvidia came out with its earnings, blowing past analysts’ expectations for earnings and revenue. They were expected to earn $2.09 a share and announced $2.70 a share - a 429% increase over the past year. They also added over $2 billion more in revenue than expected this past quarter. Furthermore, they declared they would be purchasing up to $25 billion of their stock back).

The price of the stock has led all the mega-cap stocks on the S&P 500 and is responsible for a substantial amount of the cap-weighted S&P 500 index’s performance during 2023.  Nvidia is certainly an important component of technology and a major driver of the AI revolution.

Buy the rumor, sell the news.

These words have been repeated thousands if not millions of times throughout the halls of Wall Street.  It is all about anticipation and realization, a phenomenon that has fascinated investors for many generations.

Nvidia posted incredible results on Wednesday after the market closed. The stock traded up over 8% in pre-market activity throughout the evening and night before the US markets opened on Thursday.  And then it happened.  Even with the incredible earnings beat for the quarter, investors rejected the initial bullish reaction and sold Nvidia down throughout the day.  The stock closed flat on the day.  The rest of the semiconductor and tech stocks tanked leading to a one-day decline of over 2% in the NASDAQ.

Investors “sold the news”.  

The market had priced in the anticipated good news over the past few months as Nvidia soared (especially in June and July).  The overhyped news about AI and the impact Nvidia will have was dismissed after the news was released. Nvidia now sits at resistance and technology still shows signs of late summer seasonal weakness.  See charts below:

Seasonal weakness.  Especially for Technology and other leading sectors.

In recent Market Outlooks we have pointed out the seasonal weakness that has occurred historically during August to October.  This is even more profound especially as it relates to pre-election years (or the 3rd year of a Presidential cycle).  We continue to experience choppy markets with higher trend reversals intraday (like this past Thursday) and weakness in Technology, Semiconductor, and Industrial stocks.  These have been the leaders thus far this year.

While the choppiness continued this past week, insiders of many of these stalwart technology companies continue to be “insider buyers”.  Also, notice the chart below moves higher, historically, after we get through this period of seasonal weakness:

And below is a chart of the NASDAQ 100 (QQQ). The tech heavy index keeps hitting its 50-day moving average.  Thursday may have caused a bit of damage to the index.

Charts we like to review often are the # of stocks above the 20 day and 50 day (and 200 which is NOT included here) moving averages for the NDX (NASDAQ 100).  You can see the weakness indicated in the below charts:

I have been reviewing these charts for a very long time. I have watched trends fall apart and begin to take hold just by the behavior of the number of stocks that begin to lose ground or turnaround.  The good news is that these charts show that a plunge has occurred.  Also, the charts have the look of oversold conditions and may be about to turn.  It is interesting to note how “frothy” these charts indicated in July when there was high positive sentiment, and the markets were up day after day.  Now the charts are residing below where they were in May, when they began the last major push higher.

Announcement:  We will be producing these color charts for the DOW, Nasdaq, and the S&P 500 including the # of stocks above the 200-day moving average.  We will be able to show the past few months and the past year so that investors can really see the condition of the underlying stocks in these indices.  This will all be available on the MarketGauge Pro site that is being launched shortly.

Hitting resistance.

Four major areas that have been powering the markets (and % returns) higher this year are all now hitting important resistance.  These areas include Technology (XLK), Semiconductors (SMH), Industrials (XLI) and Homebuilders (XHB)This is causing sideways, choppy market action.  See chart below:

Metals (Gold and Silver) are starting to look attractive.

It was a positive week for precious metals.  While gold was up over 1% for the week, Silver exploded higher by over 6%.  Is it time to look more closely at this dormant asset class?  We think so.

We have been saying for quite some time now (especially our own Mish Schneider on National TV shows) that Gold and Silver were going to have their day in the sun soon.  Our belief is that inflation is sticky and not going to be easy to get anywhere near the Fed’s target of 2%.  In fact, recently (long before Chairman Powell spoke on Friday), Mish said that inflation might tick up as it is NOT going away anytime soon.

Click here to see Mish’s interview on Schwab TV earlier this week where she suggests that the Fed is not done hiking rates as yet.

When interest rates slow their ascent higher, and it appears that the Fed is on PAUSE or finished hiking, and the economy sufficiently cools, then the yellow and white metals may take off.  We think that we are getting  close to this period and investors may be wise to take a position (or add to an existing one) as the metals market may be getting ready to move higher.  Additionally, fall has a strong seasonality for the metals.   Here are a few charts indicating that the metals may be getting ready to move higher:

This cup and handle setup can be a positive technical chart and buy point.  Here it is in the Gold market (the longer the handle portion and the longer it takes to break through often leads to explosive moves higher):

After a triple top, it is probable that the next time Gold tries to make a new high and breaks through resistance, it will climb higher quickly.  See chart below:

Some Interesting Facts:

In gleaning the many pieces of financial information weekly, we came across some very interesting (and insightful) facts that you may enjoy reviewing:

Top Heavy Valuations. Although the S&P 500 trades for an elevated 21.4 times earnings, the premium valuation is top end loaded. While the ten largest companies in the index have a median price/earnings multiple of 27.5, the median multiple of the 490 remaining companies is more than ten points lower at 17.0 times earnings. (Source: Bespoke)

50-Day Moving Average Breaks. The S&P 500 closed below its 50-day moving average on 8/15 for the first time in 96 trading days. Following prior closes below the 50-DMA (after 90+ trading days of trading above), average performance over the following one, three, six, and twelve months was better than the historical average for all periods. (Source: Bespoke)

No Love For Dividends. As the Fed has hiked rates above 5%, investors have been looking elsewhere besides the stock market for income generating investment ideas. Through 8/9/2023, the 101 S&P 500 stocks that pay no dividends were up an average of 20.7% YTD, while the 100 highest yielding stocks in the index were down 3.2% YTD. (Source: Bespoke)

Lost Decade For Long-Term Treasuries. Based on the Bank of America 10+ Year US Treasury Index, annualized total returns for long-term US Treasuries through the end of July were negative over the last one, two, and five years and rank below the fourth percentile relative to all other periods. Annualized returns over the last ten years are just barely positive (1.8%) but still rank in the 3rd percentile or below relative to history. (Source: Bespoke)

Higher Cost of Driving. Since the pandemic, used car prices have surged by more than 30% to over $27,000. According to Cox Automotive, it takes 42 months of an average income to pay off a new car compared to 33 months in 2019. As a result of declining affordability, the percentage of auto loans that are 'severely delinquent' has increased to 5.37%, which is higher than any other year since at least 2006. (Source: WSJ)

Shelter Prices Headed for the Basement. One of the primary factors keeping CPI elevated in recent months has been the price of shelter, which accounts for 30% of the overall index, but according to a recent study from the San Francisco Fed, shelter inflation is set to slow and may even turn negative by mid-2024 in what would be the most severe contraction in shelter inflation since the Global Financial Crisis of 2007-09. (Source: San Francisco Fed)

It Gets Better With Age. By waiting until age 70 versus 62 to start claiming benefits, retirees can increase the size of their monthly Social Security benefit by up to 76% on an inflation adjusted basis. According to a study from Schroders, 72% of nonretired investors are aware of this, but only 10% of them plan to wait until 70 before they start to claim benefits. (Source: CNBC)

Don't Leave Your Identity Unlocked. One way to help prevent identity theft is to "freeze" your credit so that no one can open new accounts or take loans in your name (unless you unlock it with a password).  While it’s free and available to everyone, when LendingTree analyzed the data anonymously in 2022, only 9.9% of consumers nationally had full credit freezes. (Source: LendingTree)

Pay Cuts. In a July survey of 2,000 employers by job-search website ZipRecruiter, nearly half said they had reduced pay for recent job openings.  In a separate ZipRecruiter survey of recently hired workers, 35% said they took a pay cut at their new job, which was up five percentage points from the prior quarter. (Source: ZipRecruiter)

“Damn Yankees”. On 8/16, the New York Yankees winning percentage fell below .500 with a 2-0 loss to the Atlanta Braves.  The last time the Yankees were below .500 this late in the season was in 1995 when nine active Yankees players weren’t even born yet.  At $279 million, the last-place Yankees in the AL East have a payroll 4x as high as the $70 million of the 1st place Baltimore Orioles.  (Source:, ESPN)

Thank you for reading Market Outlook.  We all wish you an enjoyable and prosperous week of trading and investing.  Be careful out there!

I now turn it over to Keith and his team and their BIG VIEW Summary bullets for this past week.




  • Sector rotation shows leadership in risk-on sectors including Semiconductors (SMH), Technology (XLK), and Consumer Discretionary (XLY), while Consumer Staples ( XLP)were down on the week. (+)
  • Market Internals looked deeply oversold last week but rallied strongly as we expected, with the McClellan Oscillator recovering nicely. (+)
  • This Week Up / Down Volume ratio recovered back above neutral territory for the S&P500 for the first time since the beginning of August. (+)
  • There has been a short-term cross of the fast-moving average in the New High/New Low ratio for the S&P500 and Nasdaq Composite ($COMPX). (+)
  • Volatility according to the short vs. mid-term Volatility Ratio (VIX/VXV) has backed off and may be confirming a failed breakout, a healthy indication for equities. A valid confirmation of the failed breakout would be a breakdown beneath the 50-day moving average of the VIX cash index. (+)
  • There has been an important reversal for the number of stocks within the S&P500 and Russell 2000 that are above their 10-day moving averages (+)
  • As the Dow (DIA) continues to underperform relative to the S&P500 (SPY), so too has the relationship between Value (VTV) and Growth (VUG) stocks with VTV resting just above its 200-day moving average with decreasing momentum according to Real Motion. (+)


  • Risk Gauges backed off to a weak Risk-Off reading. (-)
  • Gold (GLD) reclaimed its 200-day moving average and is actually showing leadership relative to the S&P500 on a short-term basis. (-)
  • The Dollar (UUP) is in a bull phase and is hitting new highs for the year, but is running rich and looks to be overbought according to Real Motion. (-)


  • All 4 key US indices are in warning phases and are subject to mean reversion based on oversold readings in both price and our Real Motion momentum indicator. (=)
  • The number of accumulation days relative to the number of distribution days amongst the 4 key US indices show that Volume Patterns marginally improved, with 3 of the 4 indices ending the week with an accumulation day on Friday. (=)
  • Silver (SLV) and Gold Miners (GDX) rallied this week with emerging markets led by Vietnam (VNM) and Brazil (EWZ) showing a heavier commodity theme in global markets. (=)
  • Interest rates remain in a long-term uptrend, however, there was a short-term bounce this week in the US long bond (TLT) after reaching oversold levels last week according to the Real Motion indicator. (=)
  • Two negative developments this week amongst the members of Mish’s Modern Family include Retail (XRT) continuing to sell off led by bad earnings, and Regional Banks (KRE) failing to reclaim its 50-day moving average. Two positive developments were that Semiconductors (SMH) held up fairly well for the week as well as Biotech (IBB) which is now outperforming the S&P500 on a relative basis. (=)
  • Soft Commodities (DBA) remain in a long-term ascending parallel range and rallied off of the bottom of that range this week to reclaim the 50-day moving average and a bullish phase. (=)

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