Bonds Gaining Strength as Market Searches for Soft Landing

The HCM-BuyLine® went negative for a short period of time and moved us to reduce exposure to equities, only for the market to regroup and push back up above the HCM-BuyLine® and move us back into the market. Fed Chair Powell and some key data points can change the outlook for equities and bonds in short order.

Chart: TLT 1-year daily
The market is starting to broaden out, as seen by the Russell 2000 ETF (IWM) which had a nice uptick last week. This gives a supportive outlook for a soft landing. Bonds are looking more active than they have in over two years, and the 20-Year treasury ETF (TLT) is gaining strength.
NVIDIA (NVDA) reports earnings after the bell today and all eyes will be watching how that stock trades. NVIDIA is one of the leading firms in the AI space, which has been one of the most interesting areas of the market this year.
Initial claims for unemployment insurance increased 13,000 last week to 231,000, the highest level in nearly three months, and above the consensus estimate of 222,000. It was the third increase in the past four weeks, as layoffs have picked up somewhat in Q4. The four-week average of claims rose 7,750 to 220,250. Although still low by historical norms, the pickup in initial claims in recent weeks reflects some easing in labor demand. The lagged impact of Fed tightening is beginning to show up in the data.
Moreover, continuing claims in the prior week increased 32,000, up for the eighth consecutive week, to 1.865 million, the highest level since November 2021. The insured jobless rate also edged up to 1.3% from 1.2% in the week before, an eight-month high. These indicators suggest that it takes longer than earlier in this cycle for displaced workers to find new employment, which is another sign of easing labor market conditions.
Along with softer than expected inflation reports this week and signs of slowing economic growth in Q4 (e.g., falling retail sales and industrial production in October), the cooling in the labor market makes additional rate hikes unwarranted.

Chart: SPY 1-year daily