These two ETFs point to a potential decline in stock markets, according to this market analyst


According to Michael Kramer, founder of Mott Capital Management, growth and technology stocks, as measured by the Nasdaq-100 index, have become more expensive and look set to fall over the next two weeks.

“The Nasdaq 100 needs to reprice at lower levels to reflect actual yields,” Kramer said in a phone interview Friday. Rising real yields, which are adjusted for inflation, are particularly detrimental to valuations of technology and other growth stocks.

Real rates have been climbing lately, as indicated by the decline in the iShares TIPS Bond ETF TIP,
+0.05%,
said Kramer. Meanwhile, the earnings performance of Invesco QQQ Trust, an exchange-traded fund that tracks the Nasdaq-100 index, fell, according to Kramer. This is indicated by the recent rise in Invesco QQQ Trust QQQ shares,
+2.19%,
he said.

Trading the two ETFs helps inform his bearish view of the market.

The recent rise in Invesco QQQ Trust diverged from the decline seen in the iShares TIPS Bond ETF, creating a widening gap that suggests the Nasdaq-100 could fall in the next two weeks, Kramer explained. He highlighted this divergence in this chart below in his September 8 market commentary note.

MOTT CAPITAL MANAGEMENT RATING ON SEPT. 8, 2022


“You have the TIP ETF making news lows,” Kramer said.

The divergence from the Invesco QQQ Trust means the Nasdaq is getting more expensive, he said, adding that the Nasdaq tends to follow the moves made by the TIP ETF within weeks. “What this implies for me is that the Nasdaq should hit a new low,” he said.

Kramer said he has been bearish in the stock market for some time and expects the S&P 500 SPX index,
+1.53%
drop below its June 16 low. He said the index could drop to around 3,200 over the next six months as the Federal Reserve continues to tighten monetary policy.

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US stocks were trading sharply higher on Friday afternoon, with the S&P 500 up 1.7% to around 4,073, according to FactSet data, at last check. The premier gauge Dow Jones Industrial Average DJIA,
+1.19%
was trading up 1.4%, while the tech-heavy Nasdaq Composite COMP
+2.11%
posted a 2.2% jump in Friday afternoon trading.

But stocks and bonds have fallen so far this year as the Fed hikes interest rates to fight high inflation.

“The Fed wants financial conditions to tighten to bring inflation down,” Kramer said. “You can’t see stock values ​​going up and financial conditions tightening.”

Shares of the iShares TIPS Bond ETF, which tracks an index of US Treasury inflation-protected securities, have fallen around 14% this year through September 8, with the fund suffering a loss of nearly 9% based on total return, according to FactSet. The data. The Invesco QQQ Trust has plunged more steeply this year, posting a loss of around 24% over the same period, the data showed.

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