S&P 500 Fireworks And Gold Going Stronger

Bullish run in stocks is on, driven by tech gains and value swinging higher as well. Throughout the markets, risk-on has been making a return as long-dated Treasury yields retreated, dollar fell and commodities continue their bullish flag formation. As I have tweeted on Thursday, it were the investment grade corporate bonds that signalled the turnaround in yields spreading to TLT next. Given such a constellation, the dollar‘s appeal is taking a dive as the bond market gets its reprieve. When nominal yields retreat while inflation (and inflation expectations) keep rising, real rates decline, and that leads to dollar‘s decline.

Stocks are more focused on the tidal wave of liquidity rather than the tax increases that follow behind. So far, it‘s still reflation – tame inflation expectations given the avalanche of fresh money, real economy slowly but surely heating up (non-farm payrolls beat expectations on Friday), and not about the long-term consequences of tax hikes:

(…) Reduction in economic activity, unproductive moves to outset the effects, decrease in potential GDP? Remember the time proven truth that whatever the percentage rate, the government always takes in less than 20% GDP in taxes. The only question is the degree of distortions that the tax rate spawns.

And as the falling yields were embraced by tech with open arms, the sector‘s leadership in the S&P 500 upswing is back. As you‘ll see further on, the market breadth isn‘t pitiful either – slight non-confirmation yes, but I am looking for it to be gradually resolved with yet another price upswing, and that means more open profits (that‘s 7 winning stock market 2021 trades in a row).

The Fed thus far quite succeeded in passing the inflation threat off as transitory, but the rebalancing into a higher inflation envrionment is underway – just look at the bullish consolidation across many commodities.

The crucial copper to 10-year Treasury yield ratio is slowly turning higher as the red metal defends gained ground, oil rebound is progressing and lumber is moving to new highs. And don‘t forget the surging soybeans and corn either. Apart from having positive influence upon S&P 500 materials or real estate sectors, precious metals have welcomed the turn, rebounding off the double bottom with miners‘ leadership and silver not getting too hot yet. And that‘s positive for the white metal‘s coming strong gains – let alone the yellow one‘s.

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Monica Kingsley 2 weeks ago Author's comment

Stocks keep doing great, in line with expectations - but taking a momentary rest. Strong euphoria on infrastructure bill anticipation, hold on to your hats, and I mean it both ways - protection. Precious metals doing reasonably good, and GDX leading, copper strongly up, yields not so. Solid intraday miners outperformance. Patience is still key in this market though.

Hope you had a nice Easter weekend!