S&P 500 didn‘t look back following the tame core PCE report, clearly betting on no recession and Fed to declare victory against inflation. For all the positive broadening of stock market breadth in cyclicals and tech alike, other asset classes incl. bonds didn‘t get as carried away, meaning that stocks are likely to do a shallow consolidation of steep Friday‘s gains just next (today and tomorrow premarket).
As I have written on Friday – on top of dip buying being the name of the game following Thursday‘s reaction:
(…) As I don‘t expect a hot inflation figure … this should work to ultimately let stocks overcome any initial gyration with ES move to the upside, helping real assets and weakening USD,
Apart from the recession signs recounted in prior Sunday‘s analysis (1st paragraph), let‘s bring up some more of medium-term thoughts regarding raging bullish sentiment with all that follows for earnings, profit margins and the P/E when push comes to show later in Q3:
(…) Beaten down bears would go on capitulating, one by one – succumbing to the false dawn that‘s about as alluring as the post Bear Sterns times when the bottom was supposedly in also in terms of the real economy. It won‘t be any different over this summer and Sep when the buyers would realize that deteriorating data even in non manufacturing risk dipping into recessionary territory again, and real estate beyond commercial would deteriorate alongside retail sales beyond same store sales or unemployment ranging from initial to continuing claims.
As bank reserves have started declining (and it‘s no longer just on reverse repos to offset TGA increases), the buyers of all assets would get increasingly selective.
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Let‘s move right into the charts (all courtesy of www.stockcharts.com) – today‘s full scale article contains 4 of them.
S&P 500 and Nasdaq Outlook
4,455 was comfortably overcome, and 4,474 was the lowest the intraday correction could reach. Tech not limited to the big names, was the driver, more than amply supporting the usual XLI, XLB, XLE and IWM. Very positively, XLF didn‘t keep much behind, and even XLV was bought into (seconds biggest SPX sectoral weighting, and healthcare didn‘t do universally fine lately).
Consider that USD wasn‘t weakening throughout all of the regular session (it actually remained on guard following the bulk of the risk-on rush), and that means we can look forward for a cautious entry to the holiday shortnened week incl. Wednesday premarket – 4,432 isn‘t likely to be approached really, any consolidation would happen rather in time than in price.
Market breadth did predictably improve, and there is no sign of major exhaustion, let alone bearish divergencies on the dailies anywhere. FOMO rush and quarter end positioning at its best. Still good even if the advance-decline line could have been stronger – new highs new lows count for me more as regards Friday.
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Gold, Silver and Miners
Miners move Thursday telegraphed better metals‘ showing Friday, and here we go as TLT, TLH also moved up. Precious metals sentiment should though remain cautious, we‘re not on the doorstep of a steep upswing here – basing continues.
Related: SPX Rotations Turning Strong