The Curious Staircase Rally In Stocks

Another day of tiny S&P 500 gains defying gravity, boosted by overnight price action. Well, liquidity overpowering junk corporate bonds opening with a bullish gap only to partially close it. With some credit market hints at deterioration present, the yen carry trade is getting a new lease on life today, and that‘s generally bullish for risk-on assets such as stocks – but not really for precious metals.

With all the Fed support, 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 key question is the rotation‘s degree – now that the yields appear ready to retreat still a little more (the 10-year yield appears targeting the low 1.50% figure if not declining further), which is what technology anticipates even though utilities and consumer staples have been dragging their feet a little lately. But value stocks aren‘t selling off in the least (yet?). Is the TINA still strongly in effect when those stock market segments that could have been expected under more stringent monetary policy to be sold, aren‘t no more? Rising tide lifting really all boats – in stocks.

Gold has retreated from yesterday‘s almost $1,760 highs accompanied by continued miners‘ outperformance. That‘s likely on account of the yen getting under pressure today, even though gold defended the Mar 08 bottom in spite of $USDJPY peaking in the closing days of Mar. The yellow metal is still sensitively reacting to the nominal yield moves, which are serving as a tailwind – both in the short run and when you zoom out and add copper into the picture (final chart of yesterday‘s analysis).

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Monica Kingsley 4 weeks ago Author's comment

Today's HYG session is a really weak one, and HYG:SHY ratio isn't naturally saving the day --> looks like a case of short-term non-confirmation in the making. Meanwhile, $TLT recovered daily losses much to XLK's liking --> SPX rally's internals are unchanged. The eye catching performance is seen in GDX - keeping the precious metals upswing alive.

In advance, have a nice weekend!