S&P 500 wasted another good opportunity to rise – onewhere the credit markets were largely aligned. Is it a sign of upcoming tremorsthat the 500-strong index couldn‘t defend the daily gains? Commodities weren‘tunder pressure, the dollar wasn‘t surging (looking at the closing prices),precious metals did well, and even lumber enjoyed a white candle again.
Inflation expectations retreated, and so did Treasuryyields – what‘s holding stocks then? Neither uncertainty about the Fed policy,nor surging inflation cutting into P&L,nor crashing bonds – what we‘re seeing is run of the mill volatility as stocksmove both into a structurally higher inflation environment, and await Fed moveswhich are much farther down the time line than the markets appreciate. Heck, even the option traders keep undergoingthe earlier announced shift to complacency.
Yes, the taper talk has dialed back the inflation tradesto a degree, but hasn‘t knocked them off in the least. In a reflation, bothstocks and commodities do well, and we‘re still far away from worrying aboutweakening GDP growth rates (today‘s ADP and unemployment data are a good proof thereof) – inmy view, worries about inflation not retreating nearly enough during thisTreasury market lull (taking up this summer) wouldcome into the picture first.
Reopening trades aren‘t over, the housing market activity(housing starts, new home sales) has slowed down a little while XLRE keepsrunning, financials remain as strong as value (yes, there is more juice in thattrade still), and no mad rush into tech (growth) is underway. Capacityutilization isn‘t at the top of the pre-corona range exactly, and oil prices(these serve as additional tax, a drag on the economy) aren‘t biting nearlyenough. The job market isn‘t at the strongest either, and the hours workeddon‘t match prior extremes either. Last but not least, global supply chainshaven‘t entirely recovered to meet the reopenings-boosted demand.
S&P 500 and Nasdaq wavering in latest days is aneloquent warning sign that the bears will try their luck – and they wouldultimately fail.
Technology had a mixed day while value remainsunyielding. It‘s true that the daily leadership was with XLK yesterday, butthat still remains white noise as value isn‘t yet down and out. Not by a longshot.
Gold rose a little stronger than the miners yesterday,but the move in either shouldn‘t be overrated. While the yellow metal can‘tbreak higher with confidence now, its dips remain to be bought.
The copper to 10-year Treasury yield ratio stabilizedyesterday, but the swing in either copper or long-dated Treasuries spells noshort-term calm.
Bitcoin and Ethereum charts are solidly recovering, butsome breather next wouldn‘t surprise me. Overall, the stage remains set to gohigher.
What doesn‘t go up, must come down – but look for anyS&P 500 downside to be largely bought when the dust settles.
Gold andsilver remain well bid, but the slowing pace of gains means that the bearsmight come out from hibernation – only to be repelled though. Look for copperto stabilize as a precondition, with miners not falling through the floor.
Crude oil odds favor a new upleg to proceed, but unlesscommodities and metals rebound, black gold would get vulnerable.
Bitcoin and Ethereum are peeking higher, and reboundcontinuation is more probable than other scenarios.
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MonicaKingsley
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mk@monicakingsley.co
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All essays, research andinformation represent analyses and opinions of Monica Kingsley that are basedon available and latest data. Despite careful research and best efforts, it mayprove wrong and be subject to change with or without notice. Monica Kingsleydoes not guarantee the accuracy or thoroughness of the data or informationreported. Her content serves educational purposes and should not be relied uponas advice or construed as providing recommendations of any kind. Futures,stocks and options are financial instruments not suitable for every investor.Please be advised that you invest at your own risk. Monica Kingsley is not aRegistered Securities Advisor. By reading her writings, you agree that she willnot be held responsible or liable for any decisions you make. Investing,trading and speculating in financial markets may involve high risk of loss.Monica Kingsley may have a short or long position in any securities, includingthose mentioned in her writings, and may make additional purchases and/or salesof those securities without notice.
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