The S&P 500 and Dow are currently up after Friday’s Jobs Report numbers. U.S. markets will have a chance to fully respond to the stellar March payroll report since Wall Street was shut on Friday and Treasuries traded on briefly in a very abbreviated session. The FOMC minutes and Fedspeak will be the highlights this week now that the jobs data is safely and bullishly out of the way.
Key Market Trends
Tip: Use this as a quick guide on the short-term direction of key markets. I once had a client that would call me nearly every day asking the direction of the markets. This is a quick cheat sheet to know the trend and help understand what is happening with the markets.
|S&P 500||4019.88||1.18%||46.98||4020.63||3992.78||Strong Buy|
|US Dollar Index||93.032||0.00%||0.004||93.111||92.921||Buy|
|REIT Index||2315.81||1.89%||43.04||2316.59||2277.79||Strong Buy|
Despite the good news from the employment report and other recent data, we don’t expect the Fed to change its tune on the lower-for-longer policy stance and its commitment to the ultra-accommodative posture.
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The FOMC minutes (Wednesday) will be old news though they will be scrutinized for more information on the dots which showed four members plugging in rate hikes for next year. Fed Chair Powell’s comments from an IMF panel discussion on the global economy (Thursday) will take center stage. However, he’s been the most adamant in supporting the dovish stance and is likely to repeat that while progress is being made, the Fed is a long way from achieving its employment and inflation goals. Also speaking will be voters Bostic, Evans, and Barkin, along with Kaplan and Bullard.
The Fed and US government have embraced a “Modern Money Theory” (MMT) approach and will likely stay the course for some time. As classical economics, we believe that MMT will end in disaster, but we can’t change it and it will run well until the “sugar high” runs out.
What this means to investors is that the Fed will continue to infuse capital into the markets by low-interest rates and buying investments to keep the economy running hot. Inflation is certain as are higher taxes. Thus investors should look to assets that hedge against inflation risk.
The best indicator we see for a sign of increased inflation is the 10 Year (see chart). Currently, the trend is very bullish. A push above 1.75% will start shifting investors back into bonds from equities. A yield above 2% could start crushing high-yield/junk bonds. This could in turn crash the economy because the junk bond market is larger than mortgage securities in 2008.
A limited calendar is on offer this week, but ISM non-manufacturing, PPI, and factory orders will be worth a look even if the reports will not dent rising optimism over the recovery. Strong numbers will underpin the outlook while weaker data will be attributed to weather and noisy exogenous factors.
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