Stock market forecast: inflation wakes bonds
S&P 500 bulls made little headway, although credit markets initially favored the daily rebound. Oscillating between the daily highs and lows, the 500-strong index gave up some moderately good opportunities to move back up to 4,390. The VIX understandably calmed down over the course of the day, but does not give the impression that it is giving way too much on the downside – on the contrary, it appears to have been in a general uptrend since the beginning of July. The volatility is returning and this is characteristic of the unfolding correction.
How far would it go deeper? The 4,340 followed by 4,300 and lower to medium 4,250 are the main pillars. The bulls are not (and facing quite a bit of headwinds from related markets including the dollar) to close Tuesday’s gap, which would be a turnaround. Right now we’re in a trading range where the bears have an advantage. The bull in the equity markets has not peaked, we are just in an uncomfortable correction to which the daily upswing in utilities or consumer staples is testimony.
Yields and the dollar are alternating to put inflation under pressure, and the precious metals are particularly feeling the heat from ignoring the still unresolved debt ceiling. Government bond yields are returning to more reasonable levels around the the Fed is bustling about:
(…) Bonds signal that the Fed’s image as an inflation fighter (right or wrong, your choice is yours) is losing the benefit of the doubts that arose with the Jun FOMC – bond yields have ended their decline and subsequent trading range abruptly. This doesn’t just mean inflation (the risk of a monetary policy error from the Fed – coupled with warnings that it would take us longer than originally expected profess to believe that it would naturally subside all by itself), but it smells like stagflation.
The slowly but surely recognized inflation surprise will bite the central bank again as inflation expectations are finally rising again, which will reduce cost pressure inflation (hello commodity superbull), the challenges of the labor market and the increasingly tight supply chains caused by order cuts, delays, bottlenecks and general problems, Bring goods to where they are expected (hello port congestion, docking plus lack of truck personnel and full container ships anchored waiting to be unloaded). And I’m not even talking about a record drought on the west coast that extends into the Rocky Mountains and the Midwest, or China’s electricity rationing. Precious metals appear to be the most undervalued asset class these weeks.
Let’s jump straight into the charts (all courtesy of www.stockcharts.com).
S&P 500 and Nasdaq outlook
The S&P 500 paused for a day and the bulls were giving up some opportunities to move higher.
Credit markets opened strongly (HYG did) but gave up the advantage – lower values still seem to be a matter of time (relatively short).
Gold, silver and miners
Precious metals remain under pressure, and silver suffered from the daily rise in the dollar. Gold volume did not rise accordingly, suggesting the selling pressure to raise the gold to silver ratio to 80 is a bit of an exaggeration. As mentioned days ago, you should look out for copper first for signs of life – an outperformance of the CRB index would be a welcome first sign.
Crude oil consolidation continues and the volume past the last two days shows healthy accumulation.
Copper was unable to keep the unfolding flag intact – the hesitation continues and the red metal is increasingly trading on the more undervalued end of its spectrum. Overall, it remains area-bound for the time being.
Bitcoin and Ethereum
Bitcoin and Ethereum bulls are on the move and the $ 40,000 in BTC has held up – the position of the daily indicator is improving and we can expect the rally to continue – noteworthy given the rising dollar, which I think is closer a bit as generally appreciated.
Stocks aren’t out of the woods yet, and returns are putting pressure on technology. Commodities largely ignore the taper timing and tempo speculation that cannot be said that precious metals react once to the dollar and then to returns – but not to rising inflation, inflation expectations, or severely negative real interest rates.
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All articles, research and information represent analyzes and opinions of Monica Kingsley based on available and latest data. Despite careful research and best efforts, it may prove incorrect and is subject to change with or without notice. Monica Kingsley does not guarantee the accuracy or completeness of the reported data or information. Their content is for educational purposes and should not be viewed as advice or recommendations of any kind. Futures, stocks and options are financial instruments that are not suitable for every investor. Please note that you invest at your own risk. Monica Kingsley is not a registered securities advisor. By reading her writings, you agree that she will not be held responsible or liable for any decisions you may make. Investing, trading and speculating in the financial markets can carry a high risk of loss. Monica Kingsley may have a short or long position in securities, including those mentioned in her writings, and may additionally buy and / or sell such securities without notice.
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