Gold Glitters As Stagflation Concerns Mount

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

The Dow experienced a decline for the second consecutive day, managing to recover only a portion of the initial losses. This downturn contributes to a disappointing beginning to the quarter for Wall Street, as bond yields rose and market participants adjusted their expectations, now doubting a Federal Reserve interest rate cut in June.

The stock market’s second quarter has been challenging, with persistent inflation concerns and robust economic indicators driving yields upward, diminishing the likelihood of a rate reduction by the Fed next month. The yield on the 10-year Treasury note soared to its highest point since late November, and oil prices reached a peak not seen in five months, exacerbating inflationary pressures.

I have consistently highlighted the issue of inflation, which is just starting to manifest due to growing debt and deficits, setting the stage for further economic strain. The Federal Reserve seems committed to maintaining higher interest rates for an extended period.

Despite this, optimism remains, with the S&P 500 marked a 10% increase for the first quarter—the strongest opening since 2019. Traders had hoped that inflation would decrease sufficiently for the Fed to commence rate cuts while the economy continued to expand. However, I view this optimism with skepticism.

Today’s economic reports were mixed, with the labor market remaining robust and factory orders exceeding expectations. Conversely, the decline in durable goods orders and shipments for February indicates potential GDP contraction.

These indicators have not significantly swayed the market’s rate-cut forecasts, which currently stand at a mere 50% chance of a June reduction. Meanwhile, U.S. macroeconomic surprise data has shown improvement following a recent downturn.

Federal Reserve official Loretta Mester expressed a cautious stance, suggesting that more data is needed to determine if the disinflation trend is faltering or merely experiencing a temporary setback. She emphasized the risk of prematurely lowering the federal funds rate, especially given the strength of the labor market and overall economic growth.

Yesterday’s optimism was dampened as bond yields increased further, pushing the 10-year yield to its highest level since the previous November, and undermining bullish sentiment.

In a surprising turn, the dollar weakened, reversing most of its gains from the day before. Gold, on the other hand, surged to a new intra-day high of $2,277 before retreating at the close, while silver outperformed, reaching $26 for the first time since May 2023.

Crude oil prices also climbed, surpassing $85 and reaching their highest point since last October, challenging the narrative that inflation is under control. Ultimately, the specter of stagflation looms, as depicted in a chart from ZeroHedge, succinctly captured by the equation:

“No growth” + “increasing inflation” = “rising gold prices.”

Got gold?

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Bond Yields And Gold Prices Surge: Harbingers Of A Market Correction?

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Today, the major stock indexes experienced a decline as Wall Street began the second quarter with a cautious eye on the latest U.S. inflation figures. These concerns stem from the possibility that the ongoing market rally might lose its momentum.

The Personal Consumption Expenditures (PCE) price index, excluding food and energy, indicated a 2.8% rise in inflation for February, aligning with analysts’ forecasts. This key inflation metric, which the Federal Reserve monitors closely, also showed a month-over-month increase of 0.3%.

Federal Reserve Chair Jerome Powell, in remarks made last Friday, suggested that there is no immediate need to lower interest rates, citing the current strength of economic growth and the labor market, despite inflation rates remaining above the target. Powell emphasized the importance of a cautious approach to any rate cuts, given the positive economic indicators and a downward trend in inflation.

Following the release of this data and Powell’s comments, bond yields saw a significant uptick, with the benchmark 10-year Treasury yield climbing over 12 basis points to reach 4.33%. This rise in yields exerted pressure on the stock market throughout the day. In a somewhat unexpected turn, the dollar’s value increased, and concurrently, gold prices soared to new heights, signaling that concerns over inflation are still predominant.

The likelihood of a rate cut in June has diminished, now standing at a 50% chance compared to last week’s more optimistic 75%. This shift is due in part to the persistent inflation signals emerging from various Purchasing Managers’ Indexes (PMIs).

With the markets appearing overextended by many standards, a correction seems inevitable. The critical question now is:

Could the combination of rising yields and gold prices be the catalyst for a market pullback?

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 03/28/2024

Ulli ETF StatSheet Contact

ETF Data updated through Thursday, March 28, 2024

How to use this StatSheet:

  1. Out of the 1,800+ ETFs out there, I only pick the ones that trade over $5 million per day (HV ETFs), so you don’t get stuck with a lemon that nobody wants to buy or sell.
  1. Trend Tracking Indexes (TTIs)

These are the main indicators that tell you when to buy or sell Domestic and International ETFs (section 1 and 2). They do that by comparing their position to their long-term M/A (Moving Average). If they cross above, and stay there, it’s a green light to buy. If they fall below, and keep going, it’s a red light to sell. And to make sure you don’t lose your shirt if things go south, I also use a 12% trailing stop loss on all positions in these categories.

  1. All other investment areas don’t have a TTI and should be traded based on the position of each ETF relative to its own trend line (%M/A). That’s why I call them “Selective Buy.” In other words, if an ETF goes above its own trend line, you can buy it. But don’t forget to use a trailing sell stop of 12%, or less if you’re feeling nervous.

If some of these words sound like Greek to you, please check out the Glossary of Terms and new subscriber information in section 9.

  1. DOMESTIC EQUITY ETFs: BUY— since 11/21/2023

Click on chart to enlarge

This is our main compass, the Domestic Trend Tracking Index (TTI-green line in the above chart). It has broken above its long-term trend line (red) by +12.25% and is in “Buy” mode as posted.

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Market Rally Continues Unabated: Is History Set To Repeat Itself?

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

The S&P 500 marked a moderate rise today, achieving its strongest first-quarter performance in five years and securing a fifth consecutive month of gains.

The stock market has seen an upward trend for 18 of the past 22 weeks, a streak not surpassed since 1989. While the broader market indexes hovered around the break-even point, the Dow Jones Industrial Average remained flat, and the Nasdaq traded slightly lower.

On a monthly scale, the S&P 500 saw a 3.1% increase. The Nasdaq and the Dow Jones followed suit, with gains of 1.8% and 2.1% for March, respectively. This marks the fifth successive month of gains for all three major indexes.

For the quarter, the S&P 500 surged 10.2%, its best first-quarter leap since 2019’s 13.1% rally. The Dow Jones Industrial Average climbed 5.6%, its most robust first quarter since 2021, when it soared 7.4%. The Nasdaq concluded the quarter with a significant 9.1% rise.

The early 2024 rally propelled major U.S. stock benchmarks to record highs in March, with the S&P 500 reaching an unprecedented closing peak midweek.

Nvidia, last year’s market frontrunner, continued to fuel the quarter’s and month’s gains amid the ongoing artificial intelligence boom, with its stock soaring 82% for the quarter and 14% in March alone. Bitcoin also saw substantial increases, with gains of 68% for the quarter and 31% for the month.

Unemployment insurance initial filings for the week ending March 16 were reported at 210,000, marginally below the anticipated 211,000.

Despite the market closure on Good Friday, key economic data concerning personal income, consumer spending, and personal consumption expenditures will still be released.

The first quarter of 2024 was marked by a significant split between plummeting ‘soft’ surveys and ascending ‘hard’ data. The latter, coupled with persistent inflation and continuous market commentary, led to a dramatic reduction in rate-hike expectations for Q1.

The forecast for Federal Reserve cuts in 2024 plummeted from nearly seven to fewer than three. Nonetheless, this shift did not deter the upward trajectory of stocks, as the disparity between expectations and reality widened. The MAG 7 stocks alone added an astonishing $1.7 trillion to their market cap in Q1.

Bond yields increased, the dollar strengthened, and both Bitcoin and Gold reached new heights. Meanwhile, cocoa prices skyrocketed an incredible 135% year-to-date. Wholesale gasoline and retail fuel prices surged, particularly in March.

It’s been a remarkable quarter for investors, yet history teaches us caution. With such a dynamic market landscape, one must wonder:

Could we see a repeat of this performance?

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S&P 500 Snaps Losing Streak: A Prelude To A Strong Quarter Close?

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

The S&P 500 bounced back, halting a three-day losing streak, buoyed by a substantial short squeeze that counteracted a $32 billion equity sell-off by pension funds. The tech-heavy MAG 7 staged a late-day rally, securing a positive close.

In the spotlight, Cintas shares soared 7% following impressive earnings, while Merck’s stock climbed nearly 5%, reaching a new peak. These gains come on the heels of a downturn earlier in the week, despite which, all major indexes are poised to conclude the month and quarter in positive territory when trading wraps up on Thursday.

Should this upward trend persist, it would signify the most robust first-quarter performance for the S&P 500 and Dow since 2019 and 2021, respectively, with anticipated increases of 13.1% and 7.4%. Moreover, all three indexes are on track for their fifth consecutive month of gains and a second successive quarter in the black.

While the market’s ascent continues, the looming threat of an unforeseen event could trigger a market correction. The question arises: Will an external shock disrupt the market’s current calm? Increased volatility in China’s market or interest rate adjustments in Mexico and Switzerland could be the catalysts for change, ushering in a period of uncertainty.

Bitcoin ETFs experienced a surge in inflow, leading to an initial spike, but the momentum faded as the SEC’s ongoing lawsuit against Coinbase dampened investor sentiment, resulting in increased selling and a retreat to the $69k level for Bitcoin.

Oil prices made a comeback, offsetting the previous day’s declines. The dollar remained steady, while gold ascended, testing the $2,200 mark and closing at an all-time high in US dollars.

As we approach the final trading day of March, one wonders: What surprises might the markets hold in store for us tomorrow?

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Market Muddle: S&P 500 At A Crossroads After Mixed Data

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Today, U.S. stocks experienced a modest uptick as traders aimed to reignite the rally that previously propelled equities to record levels, despite a slight setback in the last session. Newly released economic figures revealed a 1.4% increase in orders for durable goods in February, surpassing economists’ predictions of 0.8%.

One analyst suggested that the combination of robust growth data and inflation rates exceeding forecasts may not be as dire as presumed, attempting to downplay the potential long-term impact of rising inflationary pressures.

Contrastingly, the consumer confidence index for March fell short of expectations, signaling a decline in economic optimism among U.S. consumers.

Despite this, the “hard data” showed signs of resilience, with a rebound in durable goods orders and a continued rise in home prices. This mix of discouraging and encouraging news nudged expectations for a rate cut slightly higher.

Initially, the market responded positively to this paradoxical situation, where good news was perceived negatively and vice versa. However, two late day sell programs ultimately led to a downturn in the major indexes, marking the S&P 500’s third consecutive day of losses.

Concurrently, an early short squeeze quickly dissipated, echoing the pattern observed over the previous two days.

The MAG 7 stocks also experienced a sell-off. Bond yields fluctuated but remained relatively stable, while Bitcoin successfully maintained its $70k level after assimilating the prior day’s gains.

The dollar saw little movement, gold briefly approached the $2,200 mark before retreating to close with minimal gains, and oil prices experienced a slight decline in anticipation of the upcoming inventory data release.

As traders weigh these mixed signals, the question arises: Will the S&P 500 face its fourth consecutive day of decline, or will a resurgence of bullish sentiment steer the index back towards growth?

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