Stocks, Gold And Commodities Meet The Fed

Precious metals didn‘t swing higher immediately, but I expect them to take the commodities‘ cue next. When Powell says the Fed isn‘t thinking about selling bonds back into the market, and that he learned a lesson (hello, late 2018), real rates aren‘t probably rising much any time soon. It appears to me a question of time before inflation expectations squeeze the nominal yields some more, which is what gold would love.

Let‘s move right into the charts (all courtesy of www.stockcharts.com).

S&P 500 Outlook

S&P 500

Daily downswing on marginally higher volume that doesn‘t shift the perspective towards a corrective territory in the least. The correct question instead is probably whether the S&P 500 upswing reasserts itself the next day or the day after.

Credit Markets

HYG and LQD

Both high yield corporate bonds (HYG ETF) and the investment-grade ones (LQD ETF) reversed to the downside yesterday, and long-dated Treasuries didn‘t have a good day either. The reversals are though not to be trusted as I look for the upswing in both to continue.

Technology and Value

tech, NYFANG and value

Tech (XLK ETF) driven by $NYFANG (lower black line) and then also Tesla (TSLA), were the key underperformers yesterday. Value stocks kept moving higher, and higher SPX prices are more likely next in this no real rotations to speak of the environment, courtesy of all the extra liquidity.

Inflation Expectations

inflation expectations

Yields are not rising, but aren‘t yet retreating either. Have the rising inflation expectations been banished? I‘m not convinced even though they aren‘t running hotter in the wake of PPI and CPI figures, which are bound to get worse next – if copper and oil are to be trusted (they are). Remember that this is the Fed‘s stated mission for now – to let inflation run to make up for prior periods of its lesser prominence.

Gold in the Limelight

gold and long-dated Treasuries

Nominal yields are gradually taking the pressure off the yellow metal as the miners keep outperforming gold. Seniors (GDX ETF) would lead gold by breaking above their recent highs convincingly (solidly above $35 on rising volume and bullish candle shape), as the tide in the metals has turned. The unavoidable inflation data bringing down real rates would do the trick.

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