The S&P 500 was unchanged and the Nifty was up last week. Indicators are mixed for the week. Markets are at resistance near all-time highs among glaring divergences. We are transitioning from an inflationary regime to a deflationary collapse. The markets are at new highs and risk-reward is poor at these levels. The Nifty is also at new highs and will likely underperform.

The past week saw US equity markets little changed. Most emerging markets were unchanged, even as interest rates rose. Transports rose. The Baltic dry index rose. The dollar was unchanged. Commodities fell. Valuations continue to be quite expensive, market breadth declined, and the sentiment is now bearish. Fear (S&P 500) abated this week, as a possible reality check from a Fed Pivot loom.

After this rally, a currency crisis should resume and push risky assets to new lows across the board. Deflation is in the air despite the recent inflationary spike and bonds are telegraphing just that. Feels like a 2008-style recession trade has begun, with a potential for a decline in risk assets across the board. The current market is tracking closely the 2000 moves down in the S&P 500, implying a panic low right ahead in the upcoming months (My views do not matter, kindly pay attention to the levels). A dollar rebound from major support is a likely catalyst.

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The S&P 500 is near all-time highs. We have bounced from recent lows without capitulation. This suggests the lows may not be in and the regime has changed from buying the dip to selling the rip. We may get a final flush down soon. Risky assets should continue breaking to the downside across the board, as earnings growth peaks.

The Fed has aggressively tightened into a recession. Deflationary busts often begin after major inflationary scares. The market has rebounded after correcting significantly, and more is left on the downside. The Dollar, commodities, and bond yields continue to flash major warning signs.

Global yield curves have inverted significantly reflecting a major upcoming recession. The recent steepening of the yield curve, within an inverted context, with rates falling, is a precursor to the next recession, and the riskiest assets will underperform going forward under such conditions. 

The critical levels to watch for the week are 5475 (up) and 5450 (down) on the S&P 500 and 24100 (up) and 23900 (down) on the Nifty. A significant breach of the above levels could trigger the next big move in the above markets.  High beta / P/E will get torched again and will likely prove to be a sell on every rise. Gold is increasingly looking like the asset class, (though overextended short-term) to own over the next decade. (Gold exploded almost 8 times higher over the decade following the dot-com bust in 2000, just imagine what would happen when this AI bubble bursts? following the recent crypto bubble burst) You can check out last week’s report for a comparison. Love your thoughts and feedback.

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