U.S. Stock Market News Today: Mixed Messages

Good morning, this is Jeffrey Cohen from US Advanced Computing Infrastructure Inc.

Inflation came in lower than the trend, and this is lowering U.S. Treasury Yields. This is also supporting small capitalization stocks, with the Russell 2000 futures in pre-market up significantly.

The European Union is taking an action similar to the United States and adding very large and significant tariffs on the importation of electric vehicles (EVs) that were manufactured in China. This is targeting Chinese companies that purchased European car brands and are now importing those cars under those European name plates, domestic brands that manufacture offshore, and other Chinese brands. We believe this is bad for consumers of electric vehicles (raises prices) and signals a coordinated NATO trade action against China. This runs counter to global economic and military stability.

Our Chicago Quantum Net Score (CQNS) model is flashing some interesting signals.

1. We see the typical names of smaller capitalization growth companies, real-estate related stocks, financing companies, and specialty retailers at the top of the list of LONG stocks.

2. We see the typical volatile names that we have been seeing for the past few months in the SHORT list, and new 'contestants' are focused in the biotechnology space. 

3. The issue is the relative strength of the signals. The long stocks are responding to a higher risk-free rate of 5.4% and a lower expected market return to risk of 5.5% (you add the two for a stock with a beta of one). The LONG stocks have a weaker signal than the SHORT stocks. This is troublesome, and suggests adding short exposure to your portfolio in the short term, preferably with the worst, garbage stocks that do most poorly during a correction. We have the list of names, and many we have researched already and watched them dilute, lose money, or just flounder near zero.

On the longer-term, if market interest rates (e.g., on the 2, 5, 10, 20 and 30 year U.S. Treasuries) fall due to lower price inflation, and the Federal Reserve lowers policy rates, this will be good for stocks and real estate valuations, and companies working in the real estate space like Opendoor Technologies Inc., $OPEN and Hovnanian Enterprises Inc., $HOV, which are both highlighted in our LONG CQNS list.

In conclusion, the short list of stocks today is more compelling than the long list, and the model suggests that except for a few hot names, investors take some risk off the table and hold more stocks, and smaller positions in each. Our third best portfolio has 15 equally weighted stocks, versus when the market was rising we would see much smaller portfolios.

For more information about becoming our investment advisory client, please contact Jeffrey Cohen at 312.515.7333 (call, text or whatsapp), or email at [email protected]. Thank you and good luck to all.