S&P 500 continued in the post-FOMC direction and managed to keep above the 3,905-3,910 support. Arguably it could have done better as the bond market retreated from its meekly positive posture only before the closing bell. The buyers didn‘t stage even a dead cat bounce, and that means Friday‘s option expiry day is likely to bring downside momentum continuation, with 3,880 coming into play should the above-mentioned support be not reconquered right after the open.

While real assets held fine on Wednesday, both precious metals and commodities took a heavy daily hit – daily, it must be said. In spite of the rising volume, the dust is likely to settle before Christmas, and both gold and silver (together with copper) are finely positioned for 2023 – to be driven by rising volatility and sticky inflation. Oil is best held only as part of a portfolio with the above three, even if it can deliver a nice upside surprise, such a catalyst isn‘t on the horizon, and first, there would come the relief rally in USD, pressuring them all.

And this rally can happen even as long-dated Treasuries keep rising to reflect the worsening economic data from housing, manufacturing, or retail sales (the last two confirm the U.S. as firmly on the road towards recession, the subject of Monday‘s extensive article). The final point worth noting is the continued steepening of the yield curve and worsening financial conditions. Whenever XLF and KRE don‘t do well, it‘s more than ample warning – and financials belonged to the drivers of this bear market rally, and have rolled over earlier than industrials or materials did. Not a good sight for bulls – as stated yesterday, stock market rips are to be sold.

The decreasing sensitivity to Fed rate hikes, balance sheet shrinking, and financial conditions, in general, is self-evident in the precious metals chart (courtesy of www.stockcharts.com).

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