Where S&P 500 Breakout?
S&P 500 again didn‘t manage to break above 4,835 even if the bond yields retreated. HYG though lagged behind, and Russell 2000 remained muted. The 2y yield dramatically retreated to 4.14% – a move the 10y at 3.96% didn‘t mirror – arguably on Yemen strukes aftermath sinking in.
Stocks though still remain in risk-on, with the mainstream rate cutting hopes being based on disinflation, on victory over inflation – just as I wrote Friday, there is higher consumer inflation and it‘s hinting at a 3% yoy floor following which the Fed would be pressed to pick what to do about it and slowing economic growth, but we‘re good two quarters away from that.
Still, stocks are marching higher for a top that isn‘t two quarters away – the key pointer to specify would be unemployment rate, productivity and retail sales coupled with overal services PMI health. So far so good – there is no worry about inflation being or becoming sticky, and likewise (justifiably) no worry over recession or no landing in the one to two quarters ahead.
Latest earnings were a mixed bag, with JPM standing out in bearish projections while C, WFC and BLK diverged in stock price moves, indicating that this isn‘t the time to be bearish financials – or either of the two sectors that I‘m describing in today‘s sectoral picks to outperform the S&P 500 over the next say 8 weeks. The weekly, daily and 4 hour charts all obviously hint at breakout.
Still, the Fed remains the greatest policy risk, with opinions about year end Fed funds rate dramatically diverging between FOMC members – while the spread was 25bp in Sep, it was 150bp in Dec, introducing significant volatility, which is part of the stock market reversal I had warned about on Jan 01. Whether we see a 25bp cut in Mar or not (odds are we do), the stock market views the glass as half full – and rate cut odds for Jan came quite back to 5.2% as well, which ain‘t really bearish stocks now, but the Red Sea situation would have an effect of inflation down the road.
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Let‘s move right into the charts (all courtesy of www.stockcharts.com) – today‘s full scale article contains 4 of them, featuring S&P 500, sectoral picks, precious metals and oil.
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S&P 500 and Nasdaq Outlook
What unfolds next, may resemble the second half of Nov, except that a deeper brief retracement is possible. This isn‘t though on the cards before we start approaching Friday‘s options expiry or Yemen truly surprises. Earnings to be reported next week, are unlikely to be bad, and I‘m looking for cautious guidance to be shaken off similarly to C, and better than WFC.
Gold, Silver and Miners
Geopolitics premium receded (temporarily), yet yields are to power the slowly turning gold – maybe $2,005 won‘t be visited unless 10y yield breaks 4.15% with conviction. Such a bond market move isn‘t on the table even following Jan FOMC that would leave rates as they are, and do its best to strike a wait and see tone about cutting.
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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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