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Soft Landing Narrative Wins

S&P 500 continued with the buy the dip reaction through core PCE, and both yields and USD shook off BoJ pretty fast. The prevaling narrative still is that the Fed managed to engineer a soft landing and that recession has been avoided within the disinflationary context. This is part of the explanation for why declining LEIs and inverted YC are still being ignored as much as the end of corona era policies (student loans) and continued depletion of excess savings – together with declining tax receipts and tightening bank lending standards, omens of recession.

But how about its timing? Layoffs aren‘t picking up, fiscal policy is still very expansive, financial conditions not too tight, so the original Sep timing can get stretched anytime into December or even beyond.

Rate hikes aren‘t over, and we‘re in for return of inflation 2H 2023. That‘s though no issue for the stock market, which would still keep rising without a steep fall, driven by industrials, materials, energy, financials and many healthcare stocks – together with tech and discretionaries. Smallcaps and midcaps too as the theme is broadening of market breadth still. Communications aren‘t to be lagging as badly as e.g. staples either. That‘s for Q3 at least.

The Fed isn‘t to pivot – in current circumstances of real economy not falling apart, that would require a steep market drop, which is unlikely. Banking is gradually sorting itself out, deposit outflows aren‘t burning and commercial real estate (collateral deterioration) is still far away. The grind higher in stocks is clearly there, on more than a medium-term basis.

I‘m covering individual markets in more details within the chart section – but do yourself a favor and review latest extensive video where I‘m discussing these subjects in greater depth, making sense of the BoJ latest move in parallels to both chasing the rally in stocks and deposit outflows.

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Let‘s move right into the charts (all courtesy of www.stockcharts.com) – today‘s full scale article contains 2 of them.

S&P 500 and Nasdaq Outlook

S&P 500 and Nasdaq

4,592 with a limited undershoot acted as support Friday, and the same can be expected Monday. Stocks are slowly recovering lost ground on yen carry trade unwinding fears – fears that though aren‘t yet striking as imminent, which is what financials would welcome. 4,615 can be overcome again, and tech wouldn‘t be really weak in that (Monday) moment.

S&P 500 and Nasdaq breadth

Market breadth is still healthy, and will return to broadening – smallcaps and midcaps would do well. Also within tech, the breadth would improve.

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All essays, research and information represent analyses and opinions of Monica Kingsley that are based on available and latest data. Despite careful research and best efforts, it may prove wrong and be subject to change with or without notice. Monica Kingsley does not guarantee the accuracy or thoroughness of the data or information reported. Her content serves educational purposes and should not be relied upon as advice or construed as providing recommendations of any kind. Futures, stocks and options are financial instruments not suitable for every investor. Please be advised that you invest at your own risk. Monica Kingsley is not a Registered Securities Advisor. By reading her writings, you agree that she will not be held responsible or liable for any decisions you make. Investing, trading and speculating in financial markets may involve high risk of loss. Monica Kingsley may have a short or long position in any securities, including those mentioned in her writings, and may make additional purchases and/or sales of those securities without notice.

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