From the desk of Vance Howard:
The markets are melting up as they say. They are overbought at this point, but again, any pullback should be bought. The HCM-BuyLine® has moved back into a very strong position. Like I have been saying for two months, September and October are historically very volatile, and that has proven to be the case, but we see the last two months of the year being strong.
Semiconductors are starting to break out to new highs. We are very long this sector and see this as being a solid move upward into year-end and possibly into 2022.
FOMC decision, tapering will not be a killer of the "Year-end everything rally".
Fed Chair Powell made several dovish statements after the announcement with saying the “Fed can be patient with rate hikes” and “inflation may wind down by Q2 or Q3 of 2022” and “no evidence of wage-rise spiral”. The overall Fed statement came in as expected but did add the statement that inflation is expected to be transitory, which possibly shows some doubts and that the Fed can slow or stop tapering if deemed necessary. On top of this today, for the first time in 5 years the US Treasury announced its first reduction in the quarterly sale of long-term debt as the necessity for borrowing is dwindling compared to where it was at during the pandemic.
The ISM Services PMI jumped 4.8 points in October, the most in seven months, to 66.7, a record high, and above the consensus of 62.0. It suggests a significant acceleration in services activity growth after a temporary lull in Q3 that was instigated by the surge in the Delta wave. All 18 industries in the ISM survey expanded. The level of the PMI and industry breadth are both consistent with above-trend growth.
Most individual ISM activity indexes increased last month. Business activity and new orders picked up by the most since March and expanded at record rates, indicating a surge in demand. Export order growth accelerated, and imports rebounded, also indicating stronger demand. But employment growth moderated, with firms noting significant staffing and labor turnover challenges. Once again, labor was reported in short supply and up in price, reflecting tightening labor market conditions. Firms also continued to deal with supply chain problems and slow deliveries. The delivery delays were the second worst on record. This led to backlogs accumulating at a record pace, while inventories shrank at the second quickest rate since March 2009. Inventory sentiment swung back down to a record low.
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