LPL Market Signals: The Krispy Kreme Indicator

Market Blog

Tuesday, July 6, 2021

Stocks are choppy in typical year two fashion. Yet, many worries are creeping in, with the recent Krispy Kreme IPO near the top of the list.

Year Two Mess

Year two of bull markets is usually strong, but it can also be quite messy. Ryan noted that this bull market won’t be much different than the others and a choppy mess the next few months could be perfectly normal. Scott discussed how market breadth has been weak, even with stocks making new highs. In other words, he has some yellow lights flashing.

See enlarged chart.

The Krispy Kreme Indicator

Ryan noted that although he is a fan of Krispy Kreme doughnuts, it is quite interesting to see they had their IPO last week. This matters, as Krispy Kreme had their first IPO back in April 2000, right as the stock market peaked before a three-year bear market. Could it happen again? Scott noted that we are still very early in this new cycle of growth and the Fed is quite accommodative, both major differences. However, Ryan did point out that stocks are as expensive as they’ve been since the late 1990s, so that is another worry. Overall, the strategists don’t think there is any major worry of impending doom due to this IPO.

The Latest from the Fed

The Fed was in damage control last week, after the latest meeting was viewed as being a tad hawkish. Various members came out and did all they could be to calm the fears that the Fed was going to be hiking rates sooner than later. Although this makes sense to us, Ryan did note that historically stocks do just fine after the first rate hike. His rationale is the economy is likely young and still expanding early in rate hike cycles, so maybe everyone should just calm down!

See enlarged chart.

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