The S&P 500 extended gains as Fed Chair Jerome Powell's testimony calmed the markets. The dollar might be having second thoughts about buying into the hawkish Fed (at least a little). Treasuries certainly are.
The performance of value stocks is signalling a certain paring of the tightening bets. While reflation or inflation trades aren't over, value is still set to underperform tech. Yes, the market breadth is going to widen as the stock bull run is far from over, and what we have seen is a run of the mill shallow correction. That's what bull markets do – they climb a wall of worry. Open profits are growing.
So, we got a preview of what a true tightening attempt could look like at its earliest stages, and at the same time Powell pledged not to raise rates unless the recovery is complete. For now, economic growth is still running faster than (current) inflation, which means that any growth scare is far down the road. Yet, the no stagflation assurances smack of this inflation narrative progression, so a healthy dose of suspicion is well placed. It's my view that the inflation expectations bought the central bank just a little time before the inflation trades regain traction. The Fed simply doesn't appear to want to act decisively.
With more taper discussions deferred to Jackson Hole, the best the Fed can do now is to attempt to reinterpret the meaning of the word transitory. Suddenly, the phase of higher inflation won't be less than three months, as originally expected, but perhaps two to three quarters. That's a world of difference!
Gold and silver are bound to like this shift in meanings, and market-based inflation expectations are starting to see through that language. Even though miners and the miners-to-gold ratio aren't marking such a turning point yet, the wait-and-see posture is there already. Given the commodity moves, silver is likely to lead gold during the next meaningful upswing. For now, basing isn't over just yet.
Crude oil welcomes the current tightening perceptions reprieve, and the oil sector is running ahead in the anticipated stock market breadth broadening. Steep downswings aren't favored, and black gold would suffer only should the Fed turn genuinely hawkish, which they objectively can't do now. So, more oil profits are ahead.
Cryptos have rebounded after the 30,000 support in Bitcoin held on a closing basis. It's up to the bulls now to prove that the washout marks the start of accumulation as favored by the weekly charts.
Let's move right into the charts (all courtesy of www.stockcharts.com).
Gold, Silver And Miners
Gold and miners are holding on to the recent lows, giving the impression of being about to peek higher as the Fed noises die down for now.
Silver hasn't yet gotten its mojo back, but the copper-to 10-year-yield ratio suggests an upswing attempt isn't that far away.
Bitcoin And Ethereum
Local bottom looks to be in place, and the bulls need to defend current levels as a very minimum in order to keep in the game.
Summary
The S&P 500 looks ready to consolidate and extend gains, with the Nasdaq is still in the driving seat.
The gold and silver upswing attempt is coming next as Fed hawkishness gets duly reassessed. Even though miners don't favor much lasting success currently, the base building before a renewed push higher (above $1,820) is under way.
Crude oil looks likely to extend its gains thanks to reflation, and money is flowing back into commodities now that the Fed is reinterpreting the "context of tightening and transitory."
Bitcoin and Ethereum have staved off further downside for now, but the bulls would need to break above $44,000 minimum in Bitcoin so as to regain bull market momentum.