superScan Panel

This post highlights actionList.Pro's superScan panel and is part of the aLP Panels Tour, a series of posts published to introduce select actionList.Pro features, benefits and related use cases.

July 22, 2024 12:00:00 PM ET

PONTE VEDRA, FL --(actionList.Pro LLC)-- actionList.Pro’s superScan Panel features a collection of six charts highlighting a set of useful money and capital market indicators and summary statistics, including:

• Effective Federal Funds Rate
• Treasury Yield Term Structure
• aLP Stock News Flow Index
• aLP powerLine Alert Distribution Study
• aLP Earnings Season Index
• aLP Stock Market Trend Study

Use Case | Some Observations from the superScan Panel’s Current Setup

Effective Federal Funds Rate: Coinciding with the increase in the federal funds target rate range, the effective federal funds rate rose from 0.08% on March 16, 2022 to 5.33% on May 27, 2023. As of this writing, it is reported at 5.33%, and has remained at above 5.00% for approximately 445 days, or almost one year and three months.

At the start of this most recent federal funds rate cycle, regulators quickly ramped up the size of the federal funds rate increases from 0 to 75 basis points over the course of four sequential meetings, and then delivered a series of three additional 75 basis point increases. Thereafter, the rate increases ameliorated from 75 basis points, to 50 and 25 basis points per meeting. More recently, Federal Reserve regulators adjourned their scheduled meetings while leaving the federal funds rate unchanged. See table below.

Federal Funds Rate Cycle: 2022 - 2024

actionList.Pro's superScan panel features a regularly updated one-year chart of the effective federal funds rate. It makes staying current with changes in this important-to-monitor market measure, near the intersection of the financial industry's regulatory and market forces, easy. See Image 1.

Image 1 - Effective Federal Funds Rate

Regulatory and Market Forces - Two Notes

-Regulatory Forces: There are four regular Federal Open Market Committee (FOMC) meetings scheduled for the balance of 2024. The Federal Reserve's Summary of Economic Projections, published June 12, 2024, indicates participants' judgements of the midpoint of the appropriate federal funds rate target level to range from 4.88% to 5.62% for 2024. In recent congressional testimony, the Federal Reserve's Chairman, Jerome Powell, did not specify a rate target, but did note his focus has shifted to include both inflationary and labor market related considerations.

-Market Forces: While federal funds rate futures contracts don't always serve to accurately predict rate outcomes, they are often applied to help assess market participants' rate expectations for future meetings. As of this writing, the market for federal funds rate futures contracts suggests the following near-term views: (1) the federal funds rate target is expected to remain unchanged at the July 31, 2024 FOMC meeting, and (2) that there exists the potential for a 25 basis point cut at the September 18, 2024 meeting. These views may change at any time.

Treasury Yield Term Structure: The U.S. Government Treasury Security Yield Curve's inversion is the longest yield curve inversion on record. It took shape in July-2022, shortly after the Federal Reserve started raising the federal funds rate target range. On the short end, rates have been idling at around 5.50%, and the long end has moderated somewhat over the past twelve months; i.e., the yield curve is somewhat less steep than a year ago. The yield curve has maintained its inversion even in light of the run-off in assets on the Federal Reserve's balance sheet. While yield curve inversions are often regarded as harbingers of economic recessions, the economy's full path to a more normal environment where long-term rates are greater than short-term rates, remains to be seen.

Image 2 - U.S. Treasury Security Yield Curves⁴

The federal funds rate's level, trends in the Federal Reserve’s balance sheet, and market-based supply / demand forces are interacting to maintain the yield curve's inverted geometry; i.e., over time, money and capital market actors' interests are being aligned with those of regulators. All else equal, the inverted yield curve will continue to exert the gravitation that draws long-term capital into shorter-term money instruments, making capital formation relatively more challenging at the margin, and pressuring inflationary forces.

aLP News Flow Index: In brief, this index is created by associating press releases from publicly traded companies with their related stocks' session returns, and then taking an average of those returns to determine the change in the index's daily value. Fun fact: actionList.Pro has grabbed, bagged, tagged, sliced and diced more than 200,000 press releases to maintain this index!

Image 3 - aLP Stock News Flow Index⁵

With a stuttering start twelve months ago, the aLP Stock News Flow Index eventually charged higher. A rally starting at the end of October (2023), largely dominated by large capitalization stocks, carried the index to its recent all time high (2024-07-16 @ 3976.89), where it was topped with a powerful run in small capitalization issues. See Image 3. Considered within the context of current market developments, its performance likely reflects an increased risk appetite brought on by developments in interest rates, the perception of regulators' success at combatting inflationary pressures, as well as the promise of greater economic efficiencies brought on by artificial intelligence initiatives.

powerLine Alerts Distribution Study: This study highlights the distribution of powerLine alerts in terms of the percent of (1) Go Long, (2) Stay Long, (3) Stay Short and (4) Go Short assessments.^* On January 23, 2024, the proportion of positive observations began a halting ascent, whereafter it touched 76.1% on 2024-05-16. As of this writing, the proportion of positive assessments rose to a recent high of approximately 78.6%, accompanied by a powerful rally in small capitalization stocks. See Image 4.

Image 4 - aLP powerLine Alert Distribution Study⁵

More specifically, the study points to five instances during the past twelve months where the proportion of positive assessments (Go Long + Stay Long) approached, or passed through, the 20% and 80% levels. Anecdotally, increases in the proportion of Go Long (Go Short) assessments tend to coincide with extended moves away from extreme conditions in the proportion of Stay Long (Stay Short) assessments. In this manner, the study may help reveal market activity beneath the stock market's surface.

aLP Earnings Season Index: The aLP Earnings Season Index helps specify the timing of the stock market's earnings season cycle. It can provide potentially important context while taking the stock market's activity into consideration. See Image 5. E.g., With what degree of certainty about the upcoming quarter's earnings announcements is market activity taking place? As of this writing, capital markets have just entered the Q2-2024 earnings announcement season, and while still considering Q1-2024, capital market actors remain busy assessing factors with the potential to impact Q2-2024 earnings announcements, and those beyond.

Image 5 - aLP Earnings Season Index⁵

Equity analysts, portfolio managers and other skilled investors are exceptionally good at evaluating the fundamentals that drive company-specific earnings. As a group, they tend to look forward toward upcoming earnings announcements, and it's worth considering that earnings expectations associated with upcoming quarters may get discounted before they arrive.

aLP Stock Market Trend Study: As of this writing, and on the heels of the aforementioned small capitalization factor driven rally, aLP’s Stock Market Trend Study highlights a fresh positive trend. See Image 6. With that said, it produced negative trend evaluations during much of the recent powerful rally in traditional market capitalization based indexes, such as the S&P500. In general, its trend evaluations have historically aligned with those of the broader market, even as measured by market capitalization-based indexes. I.e., extended bull markets were generally assessed as positive or uncertain, and extended bear markets were generally assessed as negative or uncertain.

Image 6 - aLP Stock Market Trend Study⁵

-What caused the decoupling? The study is materially grounded in a set of fundamental strategies specifically designed to help evaluate the stock market's disposition across a very broad range of stocks, at depth; well beyond the scope of that covered by most commonly available equal weighted or market capitalization weighted indexes. An important subset of highly concentrated strategies included in this study have not served to reflect the performance of that produced by a broadly diversified strategy dominated by ten-or-so very large capitalization stocks; such as that upon which the S&P500 is currently based. In contrast, they lagged meaningfully during the time period under consideration, highlighting the stock market's bifurcated character. A recent Forbes article points out that ten stocks account for about 33% of the S&P 500 index's market capitalization, and accordingly its performance.

If you enjoyed learning about actionList.Pro's superScan panel, consider this your invitation to register for a no-strings-attached free trial, available at: www.actionlist.pro. And don't forget to share this post with a friend! For updates to selected data in the superScan Panel, subscribe to the actionList.Pro RSS Feed.

About actionList.Pro

actionList.Pro™ serves as an integrated watchlist platform that positions its customers to independently monitor risk and reward attributes associated with individual stocks, or stock positions, and efficiently draw insight from across perspectives that scale from high-level capital market factors to industrial index and stock-specific price trend strength indicators. It allows for monitoring activities to take place within the context of an informational framework consisting of risk and reward related measures with the potential to drive change, and serves as an enabling technology that provides its customers with meaningful time savings while deepening their stock market insights.

Source: actionList.Pro LLC

Hashtags: #actionlistpro #interest_rates #stocks #stock_market #trends #watchlist

Important Note: This blog post does not contain investment advice. It is published within the scope of actionList.Pro's, Terms of Use Agreement and Privacy Policy. Its content is only current at the time of publication, and may change at any time thereafter. Past performance is not an indication of future performance. You are strongly advised to obtain qualified financial counsel prior to selecting a course of action related to your finances.

4. Data Source: U.S. Department of the Treasury, retrieved from U.S. Department of the Treasury; https://home.treasury.gov/policy-issues/financing-the-government/interest-rate-statistics, July 19, 2024. 5. Source: actionList.Pro. * The lower (upper) black bar chart segment indicates the proportion (%) of Go Long (Go Short) powerLine alert assessments. At the same time, the grey area immediately below (above) the central boundary specifies the proportion (%) of Stay Long (Short) powerLine alert assessments.