The Morning Call
The S&P started the week on its back foot but ended strong---seeming to regain the upward momentum that it lost three weeks ago. Which, as I keep pointing out, would not be surprising given (1) the Fed’s drive to QE Infinity and beyond and (2) Uncle Joe’s goal of dishing out money to every man, woman, child, dog, cat and lizard in the reasonable proximity of the US. So, my bottom line remains: Notwithstanding deteriorating technicals and nosebleed valuations, my Market assumption remains: ‘I can’t see an end to this uptrend as long as the money keeps flowing with abundance and in the absence of any major negative exogenous event.’
Having successfully challenged the uptrend off the March 18 low, TLT attempted a rebound last week but was unable to push through its prior high, lending weight to the notion that it might test that 3/18 low. That doesn’t fit my longer term forecast of weak secular economic growth but does reflect investors’ growing concern that inflation is on the rise as a result of explosive monetary growth and unprecedented fiscal stimulus. I am still not altering my outlook, but I am finding the counter argument increasingly persuasive.
GLD had a big up week, reestablishing a very short term uptrend and breaking above its 100 DMA (now resistance; if it remains there through the close today, it will revert to support). That puts it in tune with TLT’s pin action last week and the ‘higher inflation’ scenario.
The dollar got whacked late in the week and now appears ready to challenge its early January low. If successful, the next visible support exists at the lower boundary of its intermediate term trading range. Its price action suggests investor concern about higher relative inflation or lower relative economic growth (or both) in the US versus the rest of the globe.
Friday in the charts.
Review of Last Week
US statistical releases were downbeat last week with the primary indicators weighing three to one on the negative side. It could be nothing more than just overly enthusiastic coronavirus recovery forecasts. Because it was not a matter of the numbers being negative or (in most cases) not showing substantial improvement; it was a function of them not meeting expectations. I qualified that last statement because one stat---April nonfarm payrolls---showed a huge shortfall from estimates. And that is a big important datapoint.
Of course, this is only one week’s numbers. So, it is way too soon to start claiming that my forecast is becoming manifest. But clearly, it could be an early sign.
Overseas, the data flow was again positive side, in fact, extremely so. That is two in a row; so maybe the rest of the world is starting to catch up to the US. I need a bit longer trend to be convinced of that.
Bottom line. ‘As you know my opinion is that following an initial snapback, the US economy will likely return to its former subpar secular growth rate, stymied by irresponsible mix of fiscal/monetary policies.’---which are only getting more irresponsible.
Explain again how making the 1% richer creates more jobs (must read).
Bottom line. Are we entering a mid-cycle transition?
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