Stocks Or Gold – Which Is In The Catbird Seat?

S&P 500 spurted higher after prior days of tiny gains. Still lining up the upper border of the Bollinger Bands on the daily chart, stocks keep defying gravity. But the corporate credit markets are sending a gentle warning sign as they failed to move higher in unison on Friday.

Given the Fed support and liquidity injections talked on Friday:

(…) the Powell bid is in, affecting „traditional“ sectoral dynamics of rotation. Value is probably about to feel the heat if you look at the very long lower knot in financials (XLF ETF) yesterday. Yes, this interest rate sensitive sector still rose in the face of long-dated Treasuries‘ gains. Needless to say, technology loved that, and its heavyweights ($NYFANG) keep driving the sector up. It looks to be a question of time before Tesla (TSLA) joins – Square (SQ) already did.

The spanner in the works proved to be long-dated Treasuries as these gave up all intraday gains, and closed in a non-bullish fashion. The retreat in rising yields is running into headwinds, much sooner than the 10-year one could reach the low 1.50% figure at least. Value stocks and cyclicals such as financials appear calling it out, and both rose on Friday – and so did industrials and technology, all without tech heavyweights‘ help. Utilities and consumer staples went mostly sideways, disregarding the danger of yields about to rise again.

The rotation simply isn‘t much there, and the TINA trade isn‘t letting much air to come out of the S&P 500 sectors that would be expected to sell off in a more relaxed monetary policy. Treasury holders keep demanding higher rates, disregarding the soft patch in inflation expectations since mid-Mar. And they‘re right in doing so, for the PPI missed badly on Friday – the development I had been anticipating since mid-Feb.

Inflation in the pipeline is one of the reasons behind gold‘s resilience – and its continued rebound off the imperfect double bottom test. While the yellow metal‘s candlestick on Friday mirrors the USD/JPY one, the miners erased opening losses in a bullish show of outperformance. Given the continued consolidation in commodities keeping a partial lid on silver, that‘s bullish – gold appears sensing the upcoming pressure on the Fed to act once yields reach levels high enough to cause havoc across the markets, starting with stocks, just as I described on Mar 29.

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