MACRO MARKET TRENDS

Tip: Use this as a quick guide on the short-term direction (1-2 weeks) and long-term (1.5-5 years) of key markets. It is not a signal to buy or sell, just to show the trend. This is a quick cheat sheet to know the trend and help understand what is happening with the markets in the short term. I started making this section years ago because once had a client that would call me nearly every day asking the direction of the markets.

S&P 500 SECTOR TRENDS

Tip: Use this section to know various sectors’ performance, and weight portfolios, or look for trades. Modern portfolio theory stresses the importance of diversification, but recently several sectors like technology have outperformed others like utilities. This is also a way to narrow the sectors to find investment opportunities.

Truflation – Real Inflation Data

We are adding in a snapshot of inflation from Trueflation.com (We don’t have any association with the firm and were not given monetary compensation) There are many reasons to expect that the supply situation will worsen next year and boost inflation. The sad reality is that the real inflation number is much much higher.

Decentralized finance (DeFi) firm Truflation is based on the same calculation method as the CPI but is different in that it uses real “price data” versus the government’s survey data. It uses current real-market prices data from Zillow, Penn State, and Nielsen to measure and report inflation changes each day.

KEY DRIVERS 5-23-22

TIP – This is a brief bullet-point summary. It is a tool that gives investors and financial advisors a fast and simple list of what to news and market data watch that may move the markets.

• Ukraine Conflict (Movement Possible if Peace Agreement Reached)
• Rising Inflation, Recession & Stagflation Fears
• Chinese Lockdowns Ending
• Tuesday, May 31 – CB Consumer Confidence (May)
• Wednesday, June 1 – Unemployment Rate (May)
• Friday, June 3 – Jobs Report (May)

The week began with a Memorial Day holiday in the United States. China will also be affected by the holiday on June 2. The curtain will be lowered in the UK on Thursday 2, and Friday 3, 2022.

The US employment figures for May will be the significant weekly statistic. The May jobs report, US factory sales, and updates on construction spending are important economic reports to watch. Economists predict that 329K jobs will be added in May, down from 428K job increases in April. The unemployment rate is expected to fall to 3.5%, from 3.6%.

WEEKLY REPORT: Markets Turn Optimistic, But Stagflation Fears Mount

Investors have finally found their desire to take on risk after weeks of doom and gloom. After several weeks of declining, the US indexes turned slightly bullish. This small bullish bump came after the Fed’s most recent “minutes” and talk that suggested that the institution might be more cautious in tightening its policy to avoid a severe economic recession.

Last week was more optimistic because much of the negative news seems to have been priced in. Only a more profound and prolonged recession could further bring the market down. Let’s not get too pessimistic or optimistic. The market is now back to its historical average value, and the main areas of overvaluation are gone.

As mentioned early, investors seem to be more comfortable with central bank strategies and have integrated Fed Rate increases. However, economic statistics are still not as favorable as expected. These negative signals are still minimal, but it is essential to be aware of them. If a number fluctuates from the consensus, it could be an accident, and it’s a trend when below-expectation data begins to multiply. The Chinese government continues to be a hot-and-cold advocate for its stimulus programs, and many obstacles still hamper international trade.

All this leads me to think about one word – Stagflation.

Stagflation

Ray Dalio, Bridgewater Associates, CEO believes that we could be heading “into a stagflation kind of environment”  because there is a credit supply and demand imbalance. “The most important issue is political because we have grown up in an environment where economics ruled. We are moving to an ideological allocation, as demonstrated by the Twitter acquisition by Elon Musk. This is not a financial transaction, but it is for control. Economics will need to be part of that agenda.” Dalio predicts this will have “very large implications.”

The Goldman Sachs Global Investment Research team concluded that while growth will slow down, inflation will continue to remit, and policy rates will rise in a recent document. The bank’s Risk Appetite Indicator has dropped dramatically. This indicates that manufacturing activity and growth optimism will likely decline as we move into the summer. 

Goldman concludes that we are entering a stagflationary climate. They cite bond values falling, real rates declining, and high-risk premiums as reasons. Goldman calls the period ahead of the “Post Modern” cycle. It sees lower returns per year due to a shift in globalization to regionalization and increased spending by the government. Based on historical data, Goldman predicts that globalization reached its peak in the early 2010s and that inequality will decline over the next decades just as it did during deglobalization’s 1910s- 1970s era.

Recommendations from Goldman include companies with strong balance sheet stocks, such as utilities, telecoms, travel and leisure, food and beverages, personal care companies, and finally, renewables. We will release a list of our stagflation stock picks very soon to paid subscribers.

BONDS

The US Treasury yields are clearly down these days. The 10-year maturity was 2.73% last week, ten points less than the previous week. Investors have a clear idea of the Fed’s future actions and don’t believe it will exceed its stated efforts to reduce inflation. The European yields didn’t experience the same correction last week. This is likely because the ECB confirmed it would be raising rates in the following weeks.

CRYPTO

Bitcoin is still down around $31,000 as of this writing and appears to be recovering after weekly declines in this macroeconomic environment. The overall trend is still BEARISH, but we may start seeing support.

OIL

The tightening gasoline market in America, which saw inventories fall again this week, supports oil prices. Despite the US’s efforts to reduce its oil reserves, the buying market remains strong. Brent crude oil is trading at USD 117 per barrel, while WTI is around USD 113.

PRECIOUS METALS

The global economic slowdown is weighing down the base metals segment, which is currently on hold. Copper is at USD 9000 per metric ton, which is its lowest point of the year. Over the past five days, nickel, aluminum, and tin followed a similar trend and fell overall. Precious metals saw gold experience a buying impulse that took its price to USD 1,870. However, this rebound was hampered by the sudden rise in risk appetite and the advancing stock market indices.