Weak overnight trading gave way to a tepid European session, with a predictable buying interest at the U.S. open, which fizzled out after a few minutes. The tight-range consolidation of late gave way to heavy selling as Janet Yellen talked rate hikes and inflation.
Even the VIX upper knot doesn‘'t look so spooky any more, but the options traders aren't convinced. But how many such headline shocks have we seen recently? Capital gains tax plans, anyone? See what the market did next, shaking off the shock and rising on the Fed's continued liquidity wave. Watch what they do, not what they say. And for now, the ingredients are still in place for further stock gains.
Even long-dated Treasuries dialled back their gains and inflation expectations receded on this perceived readiness to take that pesky "transitory" inflation seriously. The U.S. dollar had a hard time reversing Monday's losses that were virtually guaranteed once the 2021 mini-taper tantrum played out on Friday in currencies. The big picture is still the same – we‘re still living the good reflation, and even if it doesn't miraculously rekindle lasting inflationary flames, the print-and-spend magic recipe will be tried again until it does.
Gold rose on the S&P 500 selloff only to reverse lower. But has anything materially changed? Miners keep doing better. They declined less, and the volume wasn‘t just there to the same extent as with the yellow metal.
And the other commodities? I'm known for incessantly beating the copper bullish drum, and the oil drum. Here, we are with further gains added since my latest oil analysis. Silver might pull back a little here, but look for it to mirror the insatiable appetite for base metals and other commodities. Beyond the Green New Deal mandates, the monetary demand is set to help power the white metal higher.
Let‘s move right into the charts (all courtesy of www.stockcharts.com).
S&P 500 Outlook
Quite a steep increase yesterday, and more upside price action returning SPX back into the range over the coming days, is needed to fix that dicey look in the daily indicators. Nothing is unimaginable in this data-light week, unless a black swan arrives. No signs thereof in the credit or currency markets, luckily.
Credit Markets
Plunging in line with stocks, junk corporate bonds made an intraday recovery on high volume – their dip was also bought. And as the investment-grade bonds maintained their opening gains as much as long-dated Treasuries did, the stage is being set for stocks to shake off yesterday‘s plunge.
Technology and Value
Has technology found the bottom, or not? Semiconductors (SPDR® S&P Semiconductor ETF (NYSE:XSD) aren't overly positive, and a similar statement can be made about FANG performance. Tech didn't join in much sturdier moves across the defensives, and didn't welcome retreating rates the way it used to earlier. Value stocks are the ones to rely upon as even financials (Financial Select Sector SPDR® Fund (NYSE:XLF) ETF) rose on such a TLT move – but stellar S&P 500 gains require both parts of the stock universe to do well simultaneously.
Summary
The S&P 500 looks ready to continue its gradual recovery, and take on the all time highs next. A key enabler would be the tech heavyweights no longer standing in the way – tentative signs of their local bottom are appearing.
Gold and miners suffered a minor setback yesterday, and the signals from related markets continue supporting further gains in spite of prolonged hesitation in the yellow metal lately.