Stocks, Gold And Commodities Meet The Fed

S&P 500 in the red – unprecedented. Don‘t pin your hopes too high for a (sharp) correction though. Yes, this time stocks listened to the weakening corporate credit markets, and the daily retreat in long-dated Treasuries inspired some profit-taking in tech. Quite some run there as yields stabilized, which has turned XLK from very stretched to the downside of its 50-day moving average, to the upside extreme. Tesla also followed suit but I doubt this is a true reversal of tech fortunes.

As stated yesterday:

(…) That‘s the result of the sea of liquidity in practice, and the avalanche of stimuli. The 1.50% yield scare on 10-year Treasuries is long forgotten, and technology welcomes every stabilization, every retreat from even quite higher levels, and value stocks barely budge. No real rotation to speak of and see here, move along.

CPI inflation is hitting in the moment, and its pressure would get worse in the coming readings. Yet the market isn‘t alarmed now as evidenced by the inflation expectations not running hot – the Fed quite successfully sold the transitory story, it seems. Unless you look at lumber, steel or similar, of course. None of the commodities have really corrected, and the copper performance bodes well for the precious metals too.

And the Fed mightily confirmed the message yesterday, which is what commodities loved. Inflation has a free reign, all it has to do is to take advantage of it. And if I look at rising oil filtering into higher gasoline and food prices, the real inflation will keep on biting (even though black gold is excluded from CPI calculations).

I don‘t expect these recent observations to change much, especially since we got the daily breather yesterday – but 3, let alone 2 red candles in a row? I haven‘t seen that in stocks for quite a while:

(…) No denying that the stock market is in a strong uptrend, but it got a bit too stretched vs. its 50-day moving average – a consolidation in short order would be a healthy move, but the CPI readings above expectations don‘t favor one [on Tuesday].

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