Nov. 26, 2023, Weekly Summary Analysis
Nov. 26, 2023
Nov. 26, 2023
Weekly Summary Analysis
Fund-flows are higher this year compared to last year, with a 13% increase in transfer rate.
In the first 16 days of November, there was a net transfer of $258B into private bank accounts, 11% higher than last year.
The SPX is expected to reach a local high and weaken in December, similar to last year's pattern.
As of Nov. 22/23, the 20-day average daily net-transfer is up to +$14.21B/day, compared to +$12.60B/day average at this time last year, which means the transfer rate is now 13% higher than last year!
In the first 16-days of November, +$258B has been net-transferred into private bank accounts, which is 11% higher than last year's $232B transfer at this point in the month.
At the end of this coming week, the regular end/start of-the-month deposits will mark the high point of the average net-transfers and, like last year, the SPX is vulnerable to reaching a local-high and then weakening as we approach the mid-December tax-take (black boxes below).
Last year at this time, the SPX was above the $3T/year net-transfer rate before dropping back down to the $2T/year rate during the month of December, then taking off again in the new year. We expect a similar pattern this year (pink arrows below).
Our proprietary liquidity model is rising like it did last year at this time (green arrows).
A closer look, shows the correlation with the SPX has reverted to the usual positive relationship.
The reverse repo model has yet to confirm a maximum (pink box). If it reaches a maximum this week, then the SPX would be expected to max-out in the first week of December since it tends to lag 1-3 weeks behind the reverse repo model. If it does not max out, then the SPX may not experience the usual December weakness. The increased fund-flows and liquidity could keep the SPX elevated through December, but I still think weakness is the more probable outcome in the first half of December.
There is a tendency for the SPX to reach a maximum around the quarterly interest payments (purple vertical lines). Last year at this time, the SPX reached a maximum after the interest payment and then dropped until after the December tax-take The same could happen this year, although the higher net-transfers might soften the weakness (black ovals below).
The reserve model has performed poorly the past couple of weeks. When reality doesn't fit the model, we need to change the model. I am studying the model and will change it if I see a way of improving its recent results.
The HY-spread has stalled its bullish-descent and could rise from here, causing the expected weakness in the SPX.
Financial stress continues to decrease which implies a strong stock market.
Four of the last six times, that the 6-month T-rate increased, the SPX first decreased (solid black-arrows below), then rallied hard-and-long (dotted black-arrows). The current situation is most similar to the 1990s, but much bigger in magnitude.
Today's situation is even better than the 1990s because there is higher fund-flow and lower household debt than during the 1990s. Clinton, thanks to his Treasury secretary, Larry (always wrong) Summers, had a budget-deficit which means funds were drained from the private-sector and household debt grew trying to fill the hole left behind. Today, there is a $1.8T/year net-transfer into the private sector, and household debt maintenance is near-historic lows.
The 1990s, were the start of a new technology; the internet communication technology. Today, we are at the start of AI technology that allows our machines to understand natural human language. I expect a massive rally in stocks that will dwarf the 1990s dotcom bull market.