Currently, there is no real reason for the Federal Reserve to either hike or lower the interest rates.
The overall market has absorbed these rates better than most expected.
Even with the CPI and PPI coming in hotter than expected, our risk factors have not moved much.
Risk remains on and Friday’s minor correction has yet to appear like anything more than that-minor.
The long bonds are still rangebound, although TLT is testing the lower regions of its trading range at around 92.00.
The chart shows the support level at 92 going back to early December.
This past week’s low is 92.23 and holding.
Momentum is doing better than price.
A break beneath that level (92), could spell trouble for instruments that are highly yield sensitive.
Nonetheless, this earnings season illustrated that growth stocks are just fine.
My “vanity” trades are just fine or pockets of consumer discretionary.
And commodities, especially precious metals, miners and oil, are all consolidating and getting ready to go higher.
So, what would make the Fed change their existing and persistent pause policy?
- A huge spike in oil over $80 a barrel (rates higher)
- Signs of a government credit default with our debt skyrocketing and the interest payments ballooning -currently now more than $1 trillion just in interest payments (rates pause or lower)
- A worldwide recession (already happening in Japan, UK and Germany) which trickles to the US (rates lowered then)
- More war-or more influential BRICS-even Janet Yellen worried (will rates matter?)
- Ongoing weather events that cause havoc to raw materials and supply chain (rates higher)
- A commercial bank default (rates go lower)
- Costs rising-Philly Fed Prices and Empire Prices paid both spike, along with the PPI (rates pause or higher)
- Wage growth- The SLOOS leads wage growth by 6-9 months and empirically wages should re-accelerate from roughly April and onwards. (rates higher)
- Geopolitics and supply chain (rates pause or higher).
Many might say, including us, that the market began to show us that it believes the FED will be behind the curve again on both the potential of recession and/or the resurgence of inflation.
Just as we gave you 2 scenarios to watch for a market correction last week-junk bonds rolling over and/or small caps failing 200 in IWM.
Here is silver. Friday it rallied with higher yields and a stronger dollar.
It didn’t care.
Just watch this. A bigger move in silver could be the barometer we have been waiting for in our prediction that more inflation is on the horizon.
FED should be watching too!
ETF Summary
- S&P 500 (SPY) 500 now the pivotal point-490 near-term support
- Russell 2000 (IWM) 195 support
- Dow (DIA) 385 pivotal
- Nasdaq (QQQ) 430 pivotal support
- Regional banks (KRE) Back to the 45-50 range
- Semiconductors (SMH) 200 pivotal
- Transportation (IYT 266 support. 282 the highs so far
- Biotechnology (IBB) 135 pivotal
- Retail (XRT) The Jan calendar range high at 73 now must hold