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Momentum Monday - European Stocks Better Than US Stocks For Now
Howard Lindzon
February 21, 2023
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Good morning...
Walmart, Home Depot, Coinbase, Domino's and Alibaba report earnings this week. That covers a lot of the global economy.
Last week, interest rates and the US dollar started to ise again. Last year that was bad for tech stocks. In the meantime, European stocks and countries continue to outperform the USA. The good news is money keeps rotating which is better than it leaving the markets altogether.
As alawys, Ivanhoff and I quickly tour the markets to see where the momentum is building. These days, the boring financial stocks continue to lead. Ivanhoff and I have a few new ideas we shared. You can watch this weeks episode and subscribe right here on YouTube. Once you subscribe, each Sunday you will get an alert when we post the show to YouTube.
Here are Ivanhoff’s thoughts:
Inflation is slowing down but not as fast as estimates which gives the Fed a good reason to continue to raise interest rates. Some Fed officials even opined that a 50bps increase might be needed at the next meeting. The market has done a marvelous job so far this year brushing aside any bad news and pushing higher. Every 4-5% has been bought so far. This is not likely to change unless interest rates and the US Dollar really spike higher.
Rug-pulls and shakeouts are normal during rising markets. In fact, you need pullback for a better risk-to-reward entry. One could feel the FOMO and hubris last week when junk started to make crazy moves on Wednesday.
It didn’t take long after that for the indexes to pull back and take most speculative names with them lower.
QQQ and IWM managed to close above their 20-day EMA. They have been riding their 20dEMA since mid-January. If QQQ closes below it, it will likely test its year-to-date volume-weighted-average price of around 290. The YTD VWAP for SPY is around 400.
While tech is consolidating recent gains, we might see a rotation into other sectors. Biotech woke up on Friday and it hasn’t really done much since last summer. After all, bull markets correct through sector rotation. If we are in one, we should see more of those.
Other reads to guide you...
Here is Charlie's week in charts. What stood out is housing starts:
During the US housing boom of 2020-21 investor demand spiked to record levels. We’re now seeing the opposite, with a 46% drop in investor purchases over the last year, the largest decline on record.
DO NOT FORGET - you can buy a one year treasury bill and earn 5 percent (the highest since 2007). I continue to own a lot of them and while this is not something to brag about compared to long term return of stocks, it is a very nice sleep at night alternative for a lot of people over 60 who will not put up with much stock market volatility if it surfaces.
Finally, as you consider stocks at the moment, make sure the companies are earning profits. The weakest stocks continue to be the winning stocks from the last cycle that are not yet able to report profits.
Have a great week.
Disclaimer: All information provided is for educational purposes only and does not constitute investment, legal or tax advice, or an offer to buy or sell any security. For full disclosures, click here.
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