S&P 500 recovered in the wake of soothing Powell conference but his words are being doubted. Inflation expectations aren‘t taking a dive on 75bp hike – catching this runaway horse now would be harder than a year ago. Financials, real estate and homebuilders are to feel the pinch increasingly more – a nice indication of the tough winds comes from lumber, which has halved in 2022. It‘s little comforting that junk corporate bonds aren‘t outdoing stocks on the downside relatively speaking – the credit default swaps on stocks I told you about weeks ago, both are and have caught up with stock prices, with the next pressure to come from earnings. The vocal denials that the economy isn‘t entering recession, kind of confirm tougher sailing ahead.
And the next 50 or 75bp hike is to solve that, seriously? I have stated that once 3.25% is pierced on the 10-year Treasury, things can start moving fast – and bond yields have quite some bearing on stock prices. For now, the economic growth worriess haven‘t yet kicked in – the markets aren‘t yet even thinking about thinking (to paraphrase last year‘s famous words) frontronning the Fed‘s dovish turn. It‘s getting serious out there, and the crypto fate illustrates that amply. Copper is searching for a double bottom while precious metals are still sideways. Given the largest hike in decades, that‘s promising medium-term. Crude oil is taking it on the chin as well – sign of consolidation, which will be worthwhile buying in its own time. For now, all the tightening hasn‘t resulted yet in significant demand destruction. Good to have taken oil profits off the table at $122 – together with stocks, this has helped to push the model $50K portfolio of early 2021 over $300K (minus costs of trading and taxes).
Let‘s get into the key charts (all courtesy of Stockcharts.com) for today – stocks:
and precious metals:
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