S&P 500 declined, within the existing narrow range, but more downside is likely to come. Bonds continue pointing lower, commodities are squeezing, yields aren‘t meaningfully retreating, and inflation keeps biting.

As stated yesterday:

(…) So, stocks are still facing the tightening Fed phase, not yet smelling the Fed pivot – the downside can reach further still, and the new battle for 4,080 is approaching. Odds are we would head that way before mid-session tomorrow – today, I‘m looking for a lackluster, paring the gains, session in stocks. And that holds true for precious metals as well – Monday‘s decline was duly reversed, and copper is carving out a local bottom as we speak. Crude oil is of course offering only shallow corrections, and didn‘t make it much below $117.50. Energy keeps running, and it ain‘t over by a long shot – when it comes to time though, I‘m looking for the rally to last a few short months more before taking even greater toll toll on the real economy, and starting to decline somewhat.

Cryptos are refusing to decline much, and that illustrates the current balance of power nicely – larger moves are unlikely. Friday‘s CPI awaits, and it would likely show limited Fed room to back off tightening – Treasuries aren‘t waiting, and keep requesting more rate hikes. The daily price action between different maturities illustrates the building strains. In this environment, sticking with real assets while favoring the short side in stock indices, is the reasonable positioning.

The point of today‘s analysis is to assess the shape markets are in right at the ECB forecast of dealing with inflation – distinguishing the verbal and real moves, and market sensitivities. Plainly stated, how much these doubt the newfound inflation-fighting spirit in the face of deteriorating economic data…

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

S&P 500 and Nasdaq Outlook

S&P 500 bears won the day, and are readying another charge – odds are the current price congestion would resolve to the downside. Too much underperformance in the high beta plays.
 

Credit Markets

This isn‘t a risk-on turn, there is still some bottom searching to be done. Tightening, that‘s still the name of the game – not enough worries about growth prospects yet.
 

Gold, Silver, and Miners

Precious metals are still sideways, waiting for a catalyst to start looming. The countdown is on, and the risks of being out of the market outweigh those of being in.
 

Crude Oil

Crude oil keeps moving higher, and it‘s a little surprising. Still no peak – I‘m looking for the climb to continue in a relatively narrow range where dips are to be bought.
 

Copper

Copper is also lagging, but at least the panic selling is over – with more focus on the monetary turn ahead and stockpile dynamics, the red metal would start recovering, gradually first. Lean times ahead for now.
 

Bitcoin and Ethereum

Cryptos aren‘t convincing in the least – that‘s another market in trouble. Biting global liquidity – the bottom isn‘t yet in.
 

Summary

S&P 500 is likely to get weaker as increasingly dull economic and monetary data keep arriving. The coming 4,080 break to the downside would be just the start – the path of getting there remains slow, but the direction is clear, bonds say. Semiconductors, small caps, financials, you name it – these shouldn‘t underperform in a bull upleg. And that means we aren‘t in one (my words continuously) – the bottom hasn‘t yet been reached, and the relative lull (bear market rally) is in its latter innings. As commodities continue surging, crude oil is leading – stocks can‘t meaningfully bottom without oil rolling over first. Not happening now or in the weeks ahead – precious metals and copper are waiting patiently for their turn to shine.