Liquidity Boost For Stocks And Gold?

Friday‘s great run gave way to yesterday‘s consolidation, and stock bulls appear in need of more before taking out the psychological 4,000 mark. The Archegos crash isn‘t causing contagion fears the way GameStop in late Jan did. The current volatility and put/call ratio simply doesn‘t reflect that.

The theme is still one of reflation – while inflation expectations are rising, and so are the inflation data for those who care to examine them closely enough, true inflation isn‘t yet here with us. Markets are merely transitioning to a higher inflation environment already, not buying the Fed‘s transitory explanation. Commodities are basing at the conquered levels before another run higher.

Make no mistake though, the current S&P 500 upswing is heavily reliant on the defensive sectors – technology isn‘t standing in the way, utilities and consumer staples are doing great, and so are several areas within the real estate sector such as the residential one, or REIT ETFs that can be expected to keep doing well. Couple that with value stocks not really retreating, and you get the current view of S&P 500 advance structurally.

Credit markets though are a little lagging behind – thanks to the return of rising yields, working its predictable magic on investment-grade corporate bonds as well. Such were my points from yesterday‘s extensive analysis, diving into the big picture across the markets and the economy:

(…) With 10-year Treasury yields at 1.67%, last week‘s decline didn‘t reach far before turning higher. Remembering stock market woes the first breach of 1.50% caused, stocks have coped well with the subsequent run-up – while in the old days of retirees actually being able to live off interest rate income, a level of 4% would bring about trouble for S&P 500, now the level is probably just above 2%. Yes, that‘s how far our financialized economy has progressed – and I look for volatility to rise, and stocks to waver and likely enter a correction at such a bond market juncture. As always, I‘ll be keeping a close eye on the signs, emerging or not, as we approach that yield level.

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Monica Kingsley 1 week ago Author's comment

Stocks are turning higher from the liquidity push early in the session, and it's the defensives that are getting the shorter end of the stick at the moment - yes, that includes tech. Value keeps the high ground, and gold miners are attempting some intraday resilience in spite of the metals' plunge.