S&P 500's lackluster performance gave way to heavy selling right before the close yesterday, when the wheels came off the stock and corporate bond market just as it did last Wednesday. This time though, VIX didn't spike to force algorythms to rebalance their volatility weighted positions, meaning there's one less support for the bulls in the short run. Just as dangerously, the put/call ratio moved to its second lowest May reading yesterday, highlighting plenty of room to jack up risk-off positioning next.
The Fed minutes aren't likely to quell the inflationary fears when the central bank's manual consists mostly of transitory inflation talking points and tolerance to upside overshoots. The market is thinking otherwise, and the speed with which stocks seem to be discounting the P&L impact of cost-push inflation, sends a warning as clear as the dissipating PPI effects. Just wait for when the job market pressures are added. In my view, the market is worrying that the Fed is losing – or has lost – the inflation battle.
Inflation expectations are running hotter (and so is inflation on the ground), yet bond yields aren't compensating enough. That's the dynamic I described on May 10 right when it first appeared. As said, inflation is the tool to eventually sink stocks, and the fear is hitting value and tech alike. The S&P 500 pendulum is swinging bullish again, thus, delaying the market regaining confidence as the sea of red encompasses the more inflation-sensitive part of precious metals (silver is much more vulnerable than gold), hottest commodities (lumber, copper) and cryptos as well. It is hard to hide somewhere when even the dollar keeps tanking in line with my almost weekly calls of late.
Gold and silver survived the pressure quite well unless you look at today's premarket figures. The consolidation I warned about on Monday, is arriving into the sector, and miners are about to send a valuable signal as to what we can expect next with respect to the unfolding pullback. Keep in mind that, as I stated a month ago, the unavoidable inflation data bringing down real rates are forming a bid below the metals, mainly below gold. What started as a decoupling from rising nominal yields will continue in a more obvious way, the more the markets worry about Fed‘s perceived control over inflation.
Crude oil is being hit alongside commodities, and it hasn't been the star performer. Nonetheless, it suffers without breaking below its recent range, and the oil sector (XOI) isn't leading the selling spree thankfully for the bulls.
Bitcoin and Ethereum gave up yesterday's intraday gains, facilitated by the China crackdown. Out of the Monday introduced long Ethereum short Bitcoin spread, only the increasingly profitable short Bitcoin part remains on.
Let's move right into the charts (all courtesy of www.stockcharts.com).
Gold, Silver and Miners
Gold and miners stalled yesterday. I am looking at the latter for clues as to where the fuel meter in the precious metals rally stands. The nominal yields effect right now is getting less relevant.
Silver paused as well, and the copper-to-10-year yield ratio remains vulnerable.
Bitcoin And Ethereum
The downswing continues unabated in both cryptos shown, and there are no signs the bottom has been reached yet.
Summary
S&P 500 bulls need to prove themselves, and there is no guarantee it would happen today. The VIX says it's not likely actually.
Gold and miners will have to defend the upswing as silver is getting under selling pressure alongside hot or not-too-hot commodities.
The crude oil chart and oil index performance support higher prices, but the commodity is caught in the selling pressure in spite of not rising too steeply before.
Bitcoin woes continue in a dramatic fashion, and so do the Ethereum ones. The bottom isn't in yet.