S&P 500 continued its recovery off my low 5,970s support shared with clients, and the drivers were further breadth and sectoral leadership overpowering daily rise in (short-term) yields. It‘s the Trump – Xi call optimism helping China-exposed stocks beyond tech, and decent housing data Friday, outlook right as called in Friday‘s premarket video.
I spoke at length about a failed H&S pattern on S&P 500 daily, and also highlighted the fake daily weakness of XLK, XLC and XLY and here we go, the declining trend line connecting recent tops was broken to the upside, with a doji. Is that insufficient? Big picture, it isn‘t – regardless of the selling in the latter part of the session. The path thus far follows my Nov call for early 2025, pre-inauguration correction – and ever since the soothing core CPI Wednesday, stock market bulls took full advantage of the bond market reprieve.
Another risk-on factor is the rise of Bitcoin and other cryptos (incl. MSTR slowly picking up speed) – of course before the Trump or Melania coin. S&P 500 with precious metals trading on European markets Monday (pay attention to bond yields retreat sending USD a bit lower) confirm the risk-on positioning and optimistic expectations from the new admin hitting the ground running. Gold is also pushing higher, and Friday was merely a daily pause in a very much unfinished grind higher, which is still very orderly – and as said, continuing early in the week.
Of course the key market to watch, are bonds – today‘s video asks will the rise in yields continue, and why exactly are yields moving higher? Have you reviewed already Saturday‘s extensive video covering so much ground beyond this question – do so please as I dive into many assets!
In earlier weeks, I wrote about upcoming real economy acceleration (manufacturing is way smaller part of the economy than services), slow improvement in productivity, deregulation driving corporate profits later in the year and as well about sticky inflation morphing into increasing inflation expectations (so far not unanchored) as drivers of the ascent in yields. Forget not about the national debt situation, fiscal deficits with or without considering the defence budget share.
Add the Fed‘s latest series of cuts, which ever since the 50bp panicky Sep start has led to what I called for it to lead – to the counterintuitive rise in yields. Such are the seeds of bond market revolt as these are perceived to light up in inflationary fires down the road – and that‘s what we‘re likely to see by end of Q2 2025. Having power to force the Fed to back off balance sheet shrinking, the bond vigilantes may make it come back as a buyer (yield curve control coming later? Remains to be seen).
Hence back in early autumn, I called for 10y yield to surpass 5% with ease – we‘re slowly getting there.
The telltale signs had been present already early in the week, with the Waller S&P 500 decline being recovered Monday fast, and Tuesday‘s session incl. closing price action starting to lean bullish in positioning for CPI, which I described at length in Wednesday‘s premarket video. Following up on Thursday with more bullish calls, and disregarding the poor closing action.
All of these led to great client gains, both swing and intraday – together with keeping the pulse on precious metals and oil. Next week of new admin start, will be very volatile – be ready.
