S&P 500 reversed the pre-FOMC decline, and turned up. The upswing didn‘t fizzle out after the conference, quite to the contrary, the credit markets deepened their risk-on posture. I guess stocks are buying the story of 7 rate hikes and balance sheet reduction in 2022 a bit too enthusiastically. Not gonna happen, next quarter‘s GDP data would probably be already negative. Yet Powell says that the risk of recession into next year isn‘t elevated – given the projected tightening, I beg to differ.
But of course, Powell is right – it‘s only that we won‘t see all those promised hikes, let alone balance sheet reduction starting in spring. Inflation would retreat a little towards year‘s end (on account of recessionary undercurrents and modest tightening), only to surprise once again in 2023 on the upside. I already wrote so weeks ago – before the East European events. There wouldn‘t enough time to celebrate the notion of vanquishing inflation.
For now, stocks can continue the bullish turn – just as commodities and precious metals aren‘t asking permission. The FOMC is over, and real assets can rise, including the badly beaten crude oil. Made a good decision to keep adding to the commodities positions at much lower prices (or turning bullish stocks around the press conference).
Let‘s move right into the charts (all courtesy of www.stockcharts.com).
S&P 500 and Nasdaq Outlook
S&P 500 upswing looks like it can go on for a while. It was driven by tech, participating more enthusiastically than value. The conditions are in place for the rally to continue, and it‘s likely that Friday would be a better day than Thursday for the bulls.
HYG is catching quite some bid, and credit markets have turned decidedly risk-on. It also looks like a sigh of relief over no 50bp hike – the stock market rally got its hesitant ally.
Gold, Silver and Miners
Precious metals upswing can return – and this correction wasn‘t anyway sold heavily into. Needless to say how overdone it was if you look at the miners. $1950s would be reconquered easily.
Crude oil bottom looks to be in, and $110s are waiting. Obviously it would take more than a couple of days to return there, but we‘re on the way.
Copper is rebounding, and even if other base metals aren‘t yet following too enthusiastically, $4.70 isn‘t far away. Coupled with precious metals returning to more reasonable values, the red metal would continue trending higher.
Bitcoin and Ethereum
Cryptos are leaning risk-on, and the bulls will close this weekend on a good note. Today‘s price action is merely a consolidation in a short-term upswing.
S&P 500 bulls got enough fuel from the Fed, and the run can continue – albeit at a slower pace. Importantly, credit markets aren‘t standing in the short-term way, but I think they would carve out a bearish divergence when this rally starts topping out. I‘m not looking for fresh ATHs, the headwinds are too stiff, but as stated within today‘s key analysis, the tech participation is a very encouraging sign for the short-term. The dollar indeed didn‘t make any kind of upside progress to speak of yesterday – and as I have also written at length in yesterday‘s report, the pre-FOMC trading pattern in real assets can be reversed now. Long live precious metals, oil and copper gains!