S&P 500 bears missed a good intraday opportunity after winning for 6 hrs in the regular session. For all the market breadth limping along, it was Russell 2000, financials, and industrials with materials that did well, no matter what energy, precious metals and cryptos see on the horizon.

Bearish divergencies in advancing-declining issues, new high-new lows, and even merely stocks above the 50-day moving averages in S&P 500 and Nasdaq – amply described yesterday together with earnings, job market, and manufacturing (LEIs) data ahead, haven‘t invalidated the medium-term bearish case for stocks. For all the shrinking liquidity talked about, this rally is proceeding – sell in May and go away“ seasonal effect would be weaker than usual.

(…) Disruptive tech (AI driving semiconductors) remains well placed. … So, we have tech stocks to outperform value in the current low growth environment, would the thinking go, however if you check market breadth in Nasdaq, the bearish divergence in the making is even worse than in S&P 500. It‘s the big names and semiconductors holding it up, while advance-decline line and new highs-new lows are largely struggling.

Don‘t forget the (some 3 months ahead) debt ceiling impasse – Treasury is thus far drawing down its General Account at the Fed (what was $355bn early Mar is only $113bn now), while the Fed is shrinking its balance sheet, and at the same time deposits from both small and big banks are going to money market funds and similar.

M2 continutes declining, LEIs are firmly negative, ISM manufacturing at 46 is the average of when recession has been declared (in my opinion, recession though isn‘t here yet still thanks to most consumers still going through the excess savings – and that‘s delaying the onset), and the deposit outflows make for less commercial credit expansion possibilities. Real estate likewise hasn‘t bottomed yet – neither commercial nor residential (and that would weigh on both banks and consumers), job market is sliding as per my schedule, and earnings estimates for the overwhelming majority still to report, seem likewise too optimistic to me still.

While we‘re getting disinflation (that‘s what‘s spurring the greatest disconnect threatening stocks), it‘s the headline figure driven by retreating energy – this though has stopped being the truth regarding oil – yet core inflation (both core CPI and core PPI) don‘t mirror that optimism.

As I have stated in late 2022, the Fed is trying to avoid the 1970s mistake of not attending to inflation expectations (as these risk becoming unanchored), hiking too fast, causing a recession, and having to cut. This time, Powell is determined to go slow, and keep rates restrictive, slightly restrictive in a bid not to cause recession, even if the Fed (correctly and not only for this reason) acknowledged recession risks in 2H 2023 as sharply up thanks to the spring banking crisis.

All of this combined translates into what I told you a week ago – USD relief rally, a few points‘ upswing coinciding with risk-off turn in the markets, is approaching as much as the talk of dollar double bottom. It had already sent precious metals packing Friday – but my 2023 star pick of PMs remains unchanged, but we‘re likely to correct first before overcoming gold highs as it becomes later in 2023 obvious that the Fed would have to step up to the plate and start buying assets again.

For now though, as the first tweet in the European morning and the following one argue, the buyers still have some time to close finally above 4,188 (likely today, not an isolated instance), but I doubt that 4,257 can be sustainably broken above. This struggle above 4,188 would be enough to convince the last doubters that a new bull market is born – if it sticks around till the end of the month.

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

S&P 500 and Nasdaq Outlook

4,209 is the nearest weak resistance, but we‘re to see consolidation around 4,188 first. The momentum from yesterday still points higher, especially if tech catches up and we see a modest rotation into growth stocks including semiconductors. No matter how these are lagging lately relatively speaking, they‘ll remain among the better-performing pockets of the market in 2023.

No time for a broad stock market downswing – rising unemployment claims Thursday would help, but undershooting PMIs Friday (nothing unachievable), would help totally. Till then, it‘s still a grind to convince that it‘s „safe“ to buy the dips before more of the earnings announced start spoiling the picture.
 

Gold, Silver, and Miners

Precious metals correction is firmly here, and merely starting. Look at crypto as well confirming the stiffening headwinds. All eyes are on Fed tightening and yields rising again (rising within a certain range for 2023 – in 10-y below 4% and above 3.25%, that‘s its range).

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