Inflation Peaked Again, Right?
Stock-Markets / Financial Markets 2021 Oct 18, 2021 - 01:41 PM GMTBy: Monica_Kingsley
S&P 500 upswing continues, and is dealing with the 4,470 resistance – but the credit markets don‘t confirm. Still, that‘s rather a sign of stock market strength than of pending doom. The break back above the 50-day moving average has very good odds of sticking, and the sectoral performance bodes well for further advances. Financials and consumer discretionaries liked the daily upswing in yields while tech and real estates fared well regardless. VIX is likely to probe even lower values, it seems.
So, the open S&P 500 long position is working out well, and will likely continue to do so as higher yields just can‘t help the dollar rise. Inflation expectations are again turning up as we have moved from 1H 2021 Fed saying that inflation was transitory to the current phrase that inflation is transitory, but would last longer than we though. The next stage (arriving latest in Q1 2022) will likely be that inflation is sticky but we have tools to deal with it, followed by putting up a happy face that it‘s a good thing we have inflation after all.
Silver will likely keep leading gold, and the nearest target for the gold to silver ratio is 73. Crucially, miners keep confirming the upswing, and the copper example bodes well for silver as both metals are essential for the green economy, talking which means that crude oil is also likely to keep rising. Time to extend the commodity profits even more at a time when crypto gains keep doing great.
Reflation is slowly giving way to stagflation – GDP growth is slowing down while inflation isn‘t disappearing, to put it mildly. The copper upswing isn‘t so much a function of improving economy prospects but of record low stockpiles. Anyway, much more to look for in the commodities and precious metals bull markets that are likely to appreciate much more than stocks this decade.
Let‘s move right into the charts (all courtesy of www.stockcharts.com).
S&P 500 and Nasdaq Outlook
S&P 500 again gapped up and closed at daily highs – the path of least resistance remains up.
Credit Markets
Debt instruments declined across the board, showing that adjusting to unyielding inflation takes precedence over raging approval of growth prospects.
Gold, Silver and Miners
Gold is having trouble overcoming $1,800, but I‘m looking for it to reverse Friday‘s decline before too long if silver and miners are any clue.
Crude Oil
Crude oil again continues extending gains while oil stocks confirm – dips are to be bought as $90 look to be taken on still this year.
Copper
Copper steep upswing was finally sold into, a little. Sideways consolidation of the high gained ground looks to be most probable next, followed by even higher prices.
Bitcoin and Ethereum
Weekend consolidation of crypto gains continues today, and is likely to give way to the bulls reasserting themselves – further gains are ahead.
Summary
Stock market rebound is likely to continue once HYG kicks in, and overcome 4,520 as the Fed‘s perceptions management regarding inflation seems to be working – Treasuries have mostly bought it, but I‘m looking for the long end of the curve to do particularly poorly. At the same time, inflation isn‘t yet breaking the stock bull run – new highs are ahead this year still, but the same goes for spending some time then in a trading range. Commodities and precious metals led by silver are best positioned to rise once the Fed moves to the above described fresh rationalization as to why inflation is running so hot.
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Monica Kingsley
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